The Smartphone versus the Fifth Amendment

For many smartphone users, passwords and passcodes have become a thing of the past. Since late 2013, Apple iPhone users have been able to access their phones by simply applying their stored fingerprint to the Home Button. Many Android devices offer the same feature. And now, Touch ID does more than unlock a phone. As of October 20, 2014, Apple’s Touch ID is fully integrated with Apple Pay, which allows users to make every-day purchases with a touch of their thumb.

However, in the aftermath of Virginia v. Baust, many smartphone users may soon reconsider their reliance on fingerprint ID technology.

In October, a Virginia trial judge ruled that unlike a passcode, the production of one’s fingerprint is not “testimonial communication”, and therefore, the Fifth Amendment privilege against self-incrimination cannot be invoked. Rather, the government may properly compel the production of a smartphone user’s fingerprint to unlock the user’s device. This force compulsion would ostensibly extend to any applications within a device that can be opened via fingerprint.

According to the Virginia court that decided the case, Fifth Amendment protection is implicated where the government demands the “(1) compulsion of a (2) testimonial communication that is (3) incriminating.” Virginia v. Baust. In its analysis, the Virginia trial judge relied on authority such as the 1967 case, United States v. Wade, where the Supreme Court found that biometrics such as height, weight, photograph, voice, and handwriting were not testimonial communication, and accordingly, could be compelled by the government.

The Court reasoned that the production of a passcode, on the other hand, is a “testimonial communication.” A cited authority United States v. Kirschner (2010), contrasted the hypothetical compellation of a passcode with the compellation of a writing sample. The court found in Kirschner that a defendant would not be revealing knowledge by giving a writing sample, but s/he would be revealing knowledge if s/he were compelled to recount the passcode.

Is All Smartphone Privacy Lost?:

As a trial court, the ruling in Virginia v. Baust is not mandatory law. However, as with any early caselaw in a novel and undeveloped area of the law, this opinion will likely be cited as a persuasive authority.

In the short term, we’ll have to wait to see what other jurisdictions will say about this burgeoning question. For now, the convenience of Touch ID may not be worth risk of lost privacy.

For more information on this topic see coverage from: Mashable; and Huff Post.

Tagged , , , , , , Leave a comment

Terms of Service: Didn’t Read? Might Not Be a Problem If It’s Browsewrap

As websites today develop increasingly complex relationships with visitors, the contracts that define those relationships have become more difficult for companies to impose as binding.  Recent litigation surrounding “Terms of Service” (ToS) agreements has put pressure on companies to draft agreements that courts will actually enforce.

Today’s ToS contracts generally come in two forms: clickwrap and browsewrap.  Clickwrap agreements require users to affirmatively review the terms and, at the end, to press the “I accept” or “I agree” button to indicate their assent.  Browsewrap agreements, on the other hand, are passive.  On most websites, the terms are connected to the main page via hyperlinks and do not require any affirmative action.  Instead, visitors signal their acceptance of the ToS by using the website.  Both types derive their names from “shrink-wrap agreements,” which were the extremely long, fine print ToS’s that appeared under the plastic wraps of prepackaged software.  Browsewraps, in particular, have fallen under heavy scrutiny in recent years.

In re Zappos.com, Inc., Customer Data Security Breach Litigation

In January 2012, Zappos.com suffered a security breach through which hackers obtained customers’ names and addresses, though not their financial information. Several plaintiffs independently filed suit against Zappos.com, alleging that the company failed to protect their valuable information.  The cases were consolidated in the District of Nevada where Zappos.com was headquartered.  Shortly thereafter, the company filed a motion to compel arbitration because, it argued, the ToS on its website had a clause that required all disputes to be “submitted to confidential arbitration in Las Vegas, Nevada.”

The clause appeared as part of a browsewrap agreement that customers were not required to affirmatively “accept.”  In fact, the company placed the “Terms of Use” hyperlink in left-hand column towards the bottom of its website, which, if you were to print it, would appear on page three of four. The District of Nevada Court concluded that plaintiffs never viewed, “let alone manifested assent to,” the Zappos.com’s ToS. The court pointed out that “[n]o reasonable user would have reason to click on the Terms of Use,” as the company never directs the user to review it, and “[a] party cannot assent to terms of which it has no knowledge or constructive notice.”

Thus, in October 2012 the court held that the arbitration provision contained therein was unenforceable, noting that “the advent of the Internet has not changed the basic requirements of a contract, and there is no agreement where there is no acceptance, no meeting of the minds, and no manifestation of assent.”  Indeed, the court found that a “highly inconspicuous hyperlink buried among a sea of links” does not provide the customer with adequate notice.  Without acceptance and a manifestation of assent, “no contract exists” and plaintiffs cannot be compelled to arbitrate.

Nguyen v. Barnes & Noble, Inc.

Similarly, in August 2014 the Ninth Circuit held that Barnes & Noble failed to provide adequate notice of its 2011 Terms of Use and, therefore, the plaintiff was not bound by the arbitration provision.  Nguyen filed a class action suit after the company canceled his order for two tablets because of “unexpectedly high demand.”  Barnes & Noble presented the ToS to its customers as a browsewrap agreement, which appeared on the bottom left-hand corner of every screen and did not require the customers to affirmatively accept.

The court explained that the central issue in cases with browsewrap agreements is whether users received actual or constructive noticed of the ToS.  Here, there was no evidence that the user had any actual knowledge of the agreement, let alone the arbitration clause. The validity of the agreement, then, turns on whether the website puts a “reasonably prudent user on inquiry notice of the terms of the contract.” The court considered the placement of the link, notices to users of the terms, and the layout of the website. Ultimately, the court held that “the proximity or conspicuousness of the hyperlink alone” is insufficient to give rise to constructive notice.  And because Nguyen did not receive adequate notice of the terms of the contract, the court held that he could not be bound by the arbitration provision therein.

Transparency

On the other side of the equation, some tech start-ups are working to make ToS agreements more transparent for consumers.  Terms of Service; Didn’t Read is one such project, aiming to fix “the biggest lie on the web: almost no one really reads the terms of service we agree to all the time.”  Indeed, this was confirmed by a 2008 study by Carnegie Mellon professors, which found that the average internet user encounters almost 1,500 privacy policies a year, most of them exceeding 2,500 words. With few people willing to spend time reviewing each and every ToS that comes their way, Terms of Service; Didn’t Read intends to fill that gap. The organization has generated a peer-review process to rate various companies’ ToS policies from “Class A,” signaling it is among the best, through “Class E,” warning that it is very troubling for consumers.

As courts such as the Ninth Circuit invalidate arbitration clauses in browsewrap ToS agreements, the pressure will be on companies to adapt their agreements so that courts will enforce them. Companies may well have a better chance with clickwraps.

Tagged , , , , Leave a comment

Virtual Marriage Equality: Nintendo’s Tomodachi Life is Behind the Times

“A celebrity might fall in love with your math teacher,” but, in Nintendo’s new Sims-like game, your characters cannot be gay.  In June 2014, Nintendo released Tomodachi Life, a 3DS social simulation game through which players import their avatars, or “Miis,” into what one game critic called a “digital dollhouse.” There, players can customize Mii characters for any person they wish – friends, family, or celebrities – and then watch as they all interact.  Despite what appears to be a game with limitless social opportunities, the Miis are only permitted to marry members of the opposite sex.

Tomodachi Life was first released in Japan in April 2013 where it received positive reviews and developed a strong following.  Nintendo set June 2014 as the release date for the U.S. market.  Just weeks before, U.S. fans started the Miiquality campaign to put pressure on Nintendo to create a gay marriage option in the game.  Tye Marini, the founder of the campaign, wanted to “be able to marry [his] real-life fiancé’s Mii,” but the game would not allow it. Marini went on to explain that his options were to “marry some female Mii, to change the gender of either [his] Mii or [his] fiancé’s Mii (and other male Miis) or to completely avoid marriage altogether and miss out on the exclusive content that comes with it.”  The timing of the campaign coincided with the 10-year anniversary of marriage equality in the U.S.

In response, Nintendo released the following statement: “We hope that all of our fans will see that ‘Tomodachi Life’ was intended to be a whimsical and quirky game, and that we were absolutely not trying to provide social commentary.”  The company later revised its comment, explaining that it was too late to revise the game and pledging to “strive to design a gameplay experience from the ground up that is more inclusive, and better represents all players.”  Despite the initial negative publicity, Tomodachi Life went on to receive positive reviews.

Nintendo’s failure to make the requested changes has left members of the LGBT community feeling excluded. And, as GLAAD national spokesperson Wilson Cruz told GamesBeat, Nintendo is signaling that it is “way behind the times.”  Cruz explained that it has “been over a decade since The Sims — the original ‘whimsical and quirky’ life simulator — allowed its users to marry any character they wanted, and many other mainstream and massively popular video games have followed their lead since.”  GLAAD urged Nintendo to do the same.

Civil rights issues in video games are not often litigated because the Supreme Court has held that video games qualify as protected expression under the First Amendment.  In 2011 in Brown v. Entertainment Merchants Association, the Court issued a 7-2 decision striking down a California law that prohibited the sale or rental of violent video games to minors.  The Court reasoned that “[l]ike the protected books, plays, and movies that preceded them,” video games communicate ideas, and that “suffices to confer First Amendment protection.”  The video game and entertainment industries applauded the decision which, in the words of the Entertainment Merchants Association’s CEO, “declared forcefully that content-based restrictions on games are unconstitutional; and that parents, not government bureaucrats, have the right to decide what is appropriate for their children.”

Ten years prior, Judge Posner of the Seventh Circuit made a similar comparison in American Amusement Machine Ass’n v. Kendrick: “Maybe video games are different. They are, after all, interactive. But this point is superficial, in fact erroneous. All literature . . . is interactive; the better it is, the more interactive.”  Judge Posner added, “Literature when it is successful draws the reader into the story, makes him identify with the characters, invites him to judge them and quarrel with them, to experience their joys and sufferings as the reader’s own.”  In that case, the Seventh Circuit held that there was insufficient evidence that exposure to violent video games actually caused harmful behavior and that young people had First Amendment rights to play these games.  These passages are frequently cited to argue that video games are no more threatening than other media forms.

Against this backdrop, civil rights groups would be hard-pressed to litigate issues of in-game marriage equality in U.S. courts.  It seems that the best strategy might be for activist organizations like GLAAD to provide support to campaigns such as Miiquality, which aim to mobilize what the game companies need most – players.

Tagged , , , Leave a comment

Agmen sues Sandoz over biosimilar application

On October 24, 2014, Amgen filed a complaint against Sandoz, the generic arm of Novartis Group, asserting three causes of action: 1) unfair competition under Cal. Bus. & Prof. Code § 17299 et seq.; 2) conversion; and 3) patent infringement. Amgen filed the complaint in response to Sandoz’s July 2014 application for a biosimilar that mirrors Amgen’s Neupogen (filgrastim, a drug used to reduce incidence of infection in patients receiving myelosuppressive anticancer drugs), which Sandoz will market under the brand name Zarzio. Sandoz’s Biologics License Application (BLA) was a milestone as it was the first accepted by the U.S. Food and Drug Administration (FDA) under the Biologics Price Competition and Innovation Act (BPCIA).

A biosimilar is biopharmaceutical that is “highly similar” to an FDA-licensed biological product—a medicine made from biological sources (living organisms). While some minor differences in active components may exist, biosimilars are functionally the same as their reference products. Biosimilars are often compared to generic drugs, which replicate traditional, small-molecule prescription drugs made through chemical processes. But biosimilars instead mirror biological products, and cannot be substituted for their reference product until they are deemed “interchangeable” (produce the same clinical results).

The Biologics Price Competition and Innovation Act (BPCIA) created an abbreviated licensing pathway for biosimilars. The BPCIA was signed into law on March 23, 2010 as part of the Affordable Care Act to facilitate affordable access to biological products. Biologics are expensive to produce and consequently cost 20 times more on average than chemical drugs. By allowing biosimilar producers to piggyback the original inventor’s extensive clinical trials required to prove the product is safe, pure, and potent, the BPCIA will reduce market barriers for companies creating biosimilars, thereby sparking industry growth and price reductions. Biosimilars will be sold at an estimated 30% discount.

Under the BPCIA patent litigation framework, the creator of a biosimilar first files a BLA with the FDA, prompting the maker of the reference product to bring an action against the applicant for infringement. Pursuant to 42 U.S.C. § 262, the applicant must provide its BLA to the reference product sponsor before the action commences, who in turn provides the applicant with a list of patents for which it believes a claim of infringement can be brought. The applicant and the innovator must then engage in “good faith negotiations” to agree upon which patents will be litigated before patent infringement claims can be brought.

After filing its July 2014 application, Sandoz was required by § 262 to submit a copy of its BLA and other relevant manufacturing information to Amgen within 20 days. Sandoz instead proposed an alternative method for exchanging information, which Amgen rejected. Nevertheless, Sandoz still refused to follow the statutory requirement. Amgen’s complaint alleges that “Defendants’ failure to provide their BLA and manufacturing information was an attempt to prevent Amgen from learning the details of their process(es) for manufacture, to avoid patent infringement litigation on any manufacturing patents, and to avoid the patent exchanges required by the statute; and instead to go directly to litigation.”

Amgen’s complaint requested an injunction preventing Sandoz from commercially marketing Zarzio until Amgen is “restored to the position they would have been had Defendants met their obligations under BPCIA” by providing the required application and manufacturing information. Significantly, the complaint asked that the court prevent Sandoz from providing initial notice of its commercial marketing until on or after FDA licensure, which would delay the launch of Zarzio by six months. In addition Amgen requested an injunction suspending FDA review of Sandoz’s application until it receives permission from Amgen to use the Neupogen license and a court judgment that Sandoz committed patent infringement by submitting its application to the FDA for approval without providing the required application information to Amgen.

The court’s interpretation of the statutory requirements will set the stage for future biosimilar applications. Such statutory interpretation will undoubtedly create further controversy as more companies begin filing biosimilar applications, and has already proven critical to the approval process in other patent disputes under the BPCIA even in its infancy.

Another key concern of the patent framework regards the process by which biosimilar developers can seek adjudication of patent resolution early in the product development phase. Because of the substantial upfront costs of developing and testing biosimilars, companies face a serious disincentive if they cannot adjudicate their legal rights to release the product until it is ready to be submitted for approval—a disincentive that seems to undermine the BPCIA’s goal of relaxing biologics market barriers to entry.

The District Court of Northern California was the first to interpret the BPCIA when it addressed this question in another dispute between Sandoz and Amgen. In June 2013, Sandoz filed a complaint against Amgen seeking declaratory judgment that two of Amgen’s patents on Enbrel (etanercept) were invalid. Sandoz claimed that it had timed the release of its biosimilar to coincide with the expiration of Amgen’s other patents, and that the patents in dispute would cause significant delay in the release of Sandoz’s product. The court granted Amgen’s motion for dismissal, concluding that it did not have subject matter jurisdiction because Sandoz had not yet filed an application with the FDA, as required by § 262. The court also found that Sandoz had not presented a “real and immediate injury or threat of future injury” because the Amgen had not yet indicated any intent to sue.

Sandoz appealed the judgment in December 13, 2013, but if affirmed, it will limit the scope of actions allowed by biosimilar developers. Resolution of this appeal will thus likely play a crucial role in the future of early stage biosimilar patent litigation.

Tagged , , Leave a comment

Klinger v. Conan Doyle Estate LTD. Extent and duration of copyright protection for fictional characters? Attorney Fees? Not so elementary

The character of Sherlock Holmes seems to remain popular more than a 120 years after its initial publication. Over the last few years we have witnessed a modern day Sherlock Holmes in the critically acclaimed BBC series Sherlock and a new take on the old Holmes in two Sherlock Holmes movies with Robert Downy Jr.

The first Sherlock Holmes story was published by Arthur Conan Doyle in 1887. The last story was published in 1927. The entire body of work consists of 56 stories and four novels. 10 of these stories were published between 1923 and 1927. Due to statutory extensions of copyright protection, the copyright protection on these 10 final stories will expire between the years 2018 to 2022.

Leslie S. Klinger is, among other things, a literary editor, specializing in Dracula and Sherlock Holmes. Klinger co-edited an anthology called A Study in Sherlock: Stories Inspired by the Sherlock Holmes Cannon. The anthology consisted of stories written by modern authors who were inspired by the characters of Sherlock Holmes and Doctor Watson. Klinger did not think he needed a license to publish the anthology, as most of the copyrights in the stories had expired. However, the estate of Arthur Conan Doyle, the owner of the copyrights, told Klinger’s publisher that it would have to pay the estate $5,000 for a license. The publisher decided to pay in order to obtain a license and the book was published.

Klinger and his co-editor decided to create a sequel to the first book to be called In the Company of Sherlock Holmes, this time with a different publisher. The estate again approached the publisher and told them they would have to obtain a license in order to be legally authorized to publish the new book. Although the estate did not explicitly threaten to sue for copyright infringement, it did threaten to prevent distribution of the book. As with the previous book, the publisher “yielded to the threat” and refused to publish the book “unless and until” Klinger obtained the proper license.

As the Court put it, “Instead of obtaining a license, Klinger sued the estate, seeking a declaratory judgment that he is free to use the material in the 50 Sherlock Holmes stories and novels that are no longer under copyright, though he may use nothing in the 10 stories still under copyright that has sufficient originality to be copyrightable.”

The estate’s main argument was that copyright on “complex” characters, whose complexity is not revealed until a later story, remains under copyright until the later story falls into the public domain. The fact that early stories featuring Sherlock Holmes and Doctor Watson are already in the public domain, does not permit their less than fully developed “complexified” characters in the early stories to be copied even though the stories themselves are in the public domain.

The issue of copyright protection of characters, separately from the works in which they appear, has been addressed in numerous court rulings in the past. One of the landmark cases dealt with a slightly less popular detective: Sam Spade. The Ninth Circuit in Warner Bros. Pictures v. Columbia Broadcasting Systems discussed the protection of characters and ruled that a character would only be protected if it constitutes “the story being told.” A later case, dealing with graphic characters, seemed to apply a different standard for protection of graphic characters, as they are distinguishable from literary characters (Walt Disney Productions v. Air Pirates). This is, however, not the issue of this ruling. It appears that both sides (and the Court) agree that the characters of Sherlock Holmes and Doctor Watson are original and distinguished enough to warrant copyright protection. The question is, can later development of a character “extend” the copyright protection for works featuring the same character that is already in the public domain?  The seventh Circuit’s answer is clear – no.

In the opinion of the Court, decided on June 16, 2014 and delivered by Judge Posner, the Court found “no basis in the statute or case law for extending a copyright beyond its expiration.” The Court cited an earlier case, Silverman v. CBS Inc., which raised a similar question. The fictional characters of Amos and Andy appeared in copyrighted radio scripts. The characters continued to appear in subsequent scripts, while the early scripts fell into the public domain. The Second Circuit ruled that copyright can only secure protection for incremental additions of originality. Interestingly, the Seventh Circuit does not mention an almost identical case, from the District Court in New York, Pannonia Farms, Inc. v. USA Cable (The District Court’s ruling in Klinger does cite the Pannonia ruling). In Pannonia, the plaintiff, claiming to be the owner of the copyright in Arthur Conan Doyle’s works, sued a basic cable network for displaying a movie featuring the characters of Holmes and Watson. The District Court cited the Silverman ruling and concluded that there was no copyright infringement.

The estate argued that denying an extension of the copyright would discourage creativity. An author may require a long time in order to “perfect a character or other expressive element that first appeared in his early work.” The loss of copyright may discourage him from trying to improve the character. The Court replied that this is a “double edged sword,” meaning this extension would shrink the public domain and not enable future creators to prepare derivative works. Furthermore, allowing this extension would encourage creators to keep writing stories with the same characters, instead of creating new ones.

The estate argued that the Court needs to distinguish between “flat” and “round” fictional characters. “Flat” characters are those completely described in the first works in which they appear. They do not evolve. The estate claims that Holmes and Watson are “round” characters, since they were not fully evolved and “rounded” until the last story written by Doyle. The Seventh Circuit rejects this argument and points out that this distinction has nothing to do with copyright law. The additional features of the characters, presented in the later stories, may be protected by copyright as long as they are “original” enough to warrant such protection.

The Seventh Circuit ends its ruling by reaffirming the notion that “perpetual or at least nearly perpetual copyrights would violate the copyright clause of the Constitution, Art. I, §8, cl. 8, which authorizes copyright protection only for ‘limited times’.”

In a later decision, the Seventh Circuit awarded Klinger with attorney’s fees. 17 U.S.C. § 505 authorizes the award of reasonable attorney fees to a prevailing party. The Court found that Klinger had to spend money on the appeal process, in which the other party had only a “frivolous” defense. The Court criticized the actions of the estate, going as far as to call them “a form of extortion”. The Court further noted that some of the estate’s actions, mainly asking Amazon and other booksellers to cooperate in enforcing “non-existing” copyrights claims against Klinger, may even be considered a violation of antitrust law.

On September 15, 2014, the Estate filed a writ of certiorari to the Supreme Court. In its petition, the estate argued that the Courts, both the District Court and the Seventh Circuit, erred by not demanding Klinger to present a concrete work, as the anthology was still in the making. There was no writing before the Court, which could be compared to the copyrighted works in order to determine if there is an infringement. This seemed to contradict the Courts’ general approach to reject rulings on “advisory” disputes. Also, the estate argued that the Seventh Circuit ruling presents a circuit conflict as to the proper test to apply for an evolving character. The estate mainly cites the Eighth Circuit decision in Warner Brothers Entertainment Inc. v. X One X Productions, which dealt with characters from films featured on movie posters and postcards. The posters and postcards were in the public domain. A film memorabilia company produced several products featuring the characters, based on the posters and postcards and their depiction in the movies (for example, a picture of Dorothy from the Wizard of Oz, with the phrase “there’s no place like home,” taken from the movie). The Eighth Circuit ruled that the entire character was not “thrust” into the public domain, because the poster and postcards did not “anticipate the full range of distinct speech, movement and other personality traits that combine to establish a copyrightable character.” 

The estate’s writ of certiorari to the Supreme Court was denied on November 3, 2014. The Seventh Circuit’s firm language in criticizing the estate business model and willingness to issue a declaratory judgment without examining a concrete work seemed to send a strong message both for the protection of the public domain and its exploitation by future creators and both to “copyright trolls,” who try to aggressively seek licensing fees, even when the claim for existing copyright protection is doubtful, at best.

 

Tagged , , , Leave a comment

Philip Morris vs. Uruguay: Intellectual Property Debate in International Investment Arbitration

In 2010, three subsidiaries of US-based Altria Group (formerly named Philip Morris Companies Inc.), Switzerland based FTR Holding S.A., Switzerland based Philip Morris Products S.A. and Uruguay based Abal Hermanos S.A., (hereinafter collectively referred to as “PMI”) started international arbitration proceedings against Uruguay.

PMI claimed that Uruguay violated several provisions of the Uruguay­Switzerland Bilateral Investment Treaty  (the “BIT”) by introducing illegitimate measures to reduce tobacco use. The BIT provides protections for investments made by Swiss companies in Uruguay, which extend to intellectual property rights. PMI claims that Uruguay’s anti-tobacco legislation caused a substantial decrease in sales, and a deprivation of PMI’s intellectual property rights. As a result, PMI claims that it is entitled to compensation under the BIT and international law. In July 2013, the Tribunal constituted to hear the case at the International Center for Settlement of Investment Disputes (“ICSID”) issued a decision that it had jurisdiction over the case. After PMI filed a memorial on the merits in March 2014, on October 13, 2014, Uruguay filed a counter-memorial. The decision of the Tribunal is expected in 2015.

International lawyers, policy makers as well as the tobacco industry closely watch the case. International lawyers are interested in the case as there are few disputes in international investment arbitration discussing intellectual property protections set forth in the BITs. This case is also crucial for policy makers in public health all around the world as there is a trend in many countries to enact legislation restricting tobacco consumption in public places and encouraging use of mandatory pictograms on cigarette packages to illustrate the adverse effects of smoking. The tobacco industry is concerned that Uruguay’s practice of both imposing health warnings that cover 80% of the package and allegedly infringe trademark will spread to other countries. There is already  controversy over Australia’s enforcement of logo-free plain cigarette packaging, which some countries like UK and France are considering adopting.

Furthermore, by filing an arbitration case against a country before ICSID, PMI is likely trying to establish a reference case that might guide practices in other countries. Switzerland has signed over 120 BITs. After Germany (135) and China (125), Switzerland has the world’s third largest network of such agreements, most of which contain provisions similar to the Uruguay-Switzerland BIT. Even if international arbitration is not governed by rules of precedent, previously issued awards are considered relevant. If PMI were to be successful in its claim against Uruguay, more claims against other developing countries may likely follow.

The Challenged Measures taken by the Uruguayan  Government

The first measure mandates all cigarette packages to include pictures illustrating the effects of smoking on human health, in addition to textual warnings. Some of the contested images include, “i) An image of a sleeping baby surrounded with tobacco smoke [. . .] linked with a caption to the effect that second-hand smoke increases the risks of Sudden Infant Death Syndrome, ii) A hand giving a thumbs-down covers the naked torso of a man and the caption indicates that smoking leads to inferior sexual performance, iii) A picture of a mouth with teeth stained yellow and rotting gums is linked with a caption to the effect that smoking causes gum disease.” PMI claims that these pictures are designed to invoke emotions of repulsion and disgust undermining the good will associated with legally protected trademarks. Uruguay claims that the pictures are designed to warn of the health effects of smoking. Those measures are compatible with its duties as a sovereign state to legislate all matters regarding public health enshrined in its constitution. Also, Uruguay is bound by the World Health Organization Framework Convention on Tobacco Control (“WHO Convention”) that prescribes similar measures.

The second measure is to require the portion of prescribed health messages to take up 80% of cigarette packaging, an increase from 50%. According to PMI, the 80% health warning coverage requirement infringes PMI’s right to use its legally protected trademarks and prevents PMI from displaying their trademarks in their proper form. Uruguay claims that the second measure is to promote legitimate health policies that are compatible with its domestic and international obligations. Indeed, the measure was enacted six months after the adoption of the WHO Convention establishing that health warnings and messages should cover “as much of the principal display area as possible.”

The third measure requires each cigarette brand to have a “single presentation” and prohibits different packaging or presentations for cigarettes sold under a given brand. Until the legislation was enacted, PMI sold multiple product varieties under each of its brands, (e.g., “Marlboro Red”, “Marlboro Gold”, “Marlboro Blue”). Afterwards, PMI was forced to sell only one product variety under each brand that it owns, which resulted in a significant decrease in sales and substantial loss of profits. In the historic case, USA v. Philip Morris USA, the court upheld a decision that “light” descriptors on the brand name were deceptive and the risk of cancer and other serious illnesses were just as high for smokers of “light” and “low tar” cigarettes than for smokers of “regulars”. Thus, US tobacco companies are legally prohibited from using descriptors like “light,” “low tar,” “mild,” or other similar descriptors in accordance with FDA rules. However, even if those deceptive descriptors are banned, PMI has replaced the “light” with “gold” or “menthol” with “green,” marketing the same cigarette with different packaging. Uruguay has implemented a regulation reiterating the prohibition on deceptive terms and other descriptive elements, such as colors, numbers, or letters that create a false impression that one tobacco product is less harmful than another. Thus, PMI has to cease selling such product varieties.

PMI claims that above-mentioned measures constitute breaches of Uruguay’s obligations under Articles 3(1), 3(2), 5 and 11 of the BIT, entitling PMI to compensation under the BIT and international law.

Legal Analysis of PMI’s Potential Claims Regarding Intellectual Property

Article 3(1) of the BIT states that “each Contracting Party shall protect within its territory investments made in accordance with its laws and regulations by investors of the other Contracting Party and shall not impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment, extension, sale and, should it so, happen, liquidation of such investments.” This is regarded as a standard BIT clause that appears in most trade agreements. This clause prohibits Uruguay from imposing unreasonable or discriminatory measures that impair the enjoyment and liquidation of PMI’s investments. ICSID has jurisdiction over legal disputes arising directly out of an investment between a Contracting State and a national (persons or companies) of another Contracting State. Hence, the concept of investment is central to the Center’s jurisdiction and the Tribunal’s competence. The ICSID Convention does not define “investment” to leave flexibility in drafting the definition of investments in BITs. According to Article 1(2) of the Switzerland–Uruguay BIT, an investment encompasses all classes of assets, which include industrial property rights such as manufacturer’s or commercial marks or trade names. Hence, the Tribunal held that Philip Morris trademarks constitute investments and did not find Uruguay’s arguments legitimate.

The merits of the case have yet to be discussed. What is known is the scope of PMI’s claims under the BIT some of which were discussed at the Tribunal’s jurisdiction hearing. Below are potential arguments that legal commentators speculate may be presented.

There is the issue of whether Uruguay has taken unreasonable or discriminatory measures to impair use and enjoyment of Philip Morris trademarks. The most valuable investment made by a tobacco company is its brands.  PMI might argue that the measure to limit use of its trademarks to 20% of the package space and prohibiting different brand names for product varieties of the same company is unreasonable, as Uruguay might not prove that such measures will decrease the tobacco consumption in the country. In its counterclaim Uruguay might refer to research conducted by WHO and other institutions that show such restrictions indeed result in significant decrease in tobacco consumption.

Article 3(2) of the BIT states, “each Contracting Party shall ensure fair and equitable treatment within its territory of the investments of the investors of the other Contracting Party.” Known as the fair and equitable standard (“FET”) in international arbitration, it requires Uruguay to respect and protect PMI’s legitimate expectations arising from the Uruguayan government’s specific representations or investment inducing measures. The FET standard ensures regulatory stability in a country. The FET standard should also be balanced with the legitimate right of sovereign states to exercise authority in the public interest. PMI might argue that under Article 3(2) it is entitled to hold a legitimate expectation that it would be making full use of its trademarks. Also, as Uruguay is a party to World Trade Organization Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), PMI might contend that it has the legitimate expectation that Uruguay would act in conformity with its obligations regarding protection of trademarks enshrined in the TRIPS Agreement.

Article 5(1) of the BIT imposes an obligation on Uruguay to refrain from acts of expropriation except for a public purpose and upon payment of ?compensation. Under private international law there might be indirect expropriation when several measures result in deprivation of investor’s right of use and enjoyment of the investment. PMI might claim that all of the three measures explained above substantially deprive it of using its trademarks without compensation by Uruguay; thus resulting in indirect expropriation.

Article 11 of the BIT constitutes an umbrella clause. Under international investment law, umbrella clause is regarded as a catch-all provision to pursue claims when a host state’s actions do not otherwise breach the BIT. Uruguay is a party to two international treaties, TRIPS and the Paris Convention for the Protection of Industrial Property (“Paris Convention”), both of which include trademark provisions. According to Article 11 of the BIT, Uruguay should comply with its commitments with respect to investment and the commitments made under TRIPS and the Paris Convention. Indeed both treaties constitute standards that states should implement to protect the intellectual property rights of its nationals and nationals of other states. Uruguay has an intellectual property law in force that is similar to most other countries. If PMI does not prove that it has either discriminated against Uruguayan nationals with regards to enjoyment of its trademarks or Uruguay’s IP legislation does not meet the standards of TRIPS, then the Article 11 claim seems weak. On the other hand, a BIT Tribunal does not have jurisdiction to make a decision on TRIPS non-compliance. Only states might bring action against other states before the WTO claims that there is a breach of TRIPS. Finally, even if the Tribunal accepts arguments of PMI regarding Uruguay’s non-compliance with the TRIPS Agreement, Article 17 of the TRIPS provide WTO Members with considerable discretion to impose “… limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, provided that such exceptions take account of the legitimate interests of the owner of the trademark and of third parties.”

 

Tagged , , , , , Leave a comment

Update on American Broadcasting Companies, Inc. v. Aereo, Inc.

On October 15, 2014, Aereo, appeared at a hearing before the U.S. District Court in New York to defend itself against a preliminary injunction filed by broadcasters seeking the court’s order to stop Aereo from streaming and publicly performing any copyrighted content over the internet. The hearing follows Aereo’s loss before the Supreme Court in June.

On June 25, 2014, the US Supreme Court ruled against Aereo in a high profile dispute. In its 6-3 decision, the Court held that Aereo violated the Transmit Clause defined in the Copyright Act, 17 U.S.C. §10. The Court found that Aereo publicly performed copyrighted works of the petitioners (ie. Disney, CBS, NBC, Fox) by enabling subscribers to watch TV programs over the Internet in exchange for a fee. In the holding, the complexity of the technology used by Aereo while transmitting TV programs over Internet was underlined.

Aereo has warehouses where thousands of mini-antennas, roughly the size of a dime, and other equipment are housed. When subscribers login to Aereo’s application, they select the TV channel they want to watch from the catalog. If the program is currently airing, a subscriber can either watch live or record the program for later. If the subscriber chooses to watch the program live, Aereo’s servers in the warehouse assigns one of those tiny antennas to the subscriber and tunes in the antenna to the selected TV channel. Aereo’s servers then transcodes the over the air TV signal to digital data and saves it in a user specific folder for a couple of seconds before transmitting the program over the Internet. Then, Aereo facilitates the digital delivery of the signals to the subscribers Over-the-Top (OTT) so that subscribers can watch live TV programs. If the subscriber clicks on the “record” after the program starts, Aereo retains a unique copy of the program in its storage servers so that the subscriber can watch programming whenever they choose.

The crucial detail here is that the antenna only serves a single subscriber at any given time and the folder that is used to store the digital data is not shared among users. It is like having your rabbit ear antenna behind your TV on the roof of Aereo’s warehouse or moving your local DVR box to the cloud. The broadcast signals owned by the petitioners are transmitted free of charge to any viewer with a TV and antenna. Unlike Aereo cable companies, like Comcast and Time Warner, pay license fees for over the air signals to retransmit broadcasts. Aereo’s technology and business model allowed Aereo to keep costs very low in comparison to cable companies. Consequently, Aereo charged subscribers considerably less than cable companies for their service.

Background of the Case

On April 1st 2013, U.S. Court of Appeals for the Second Circuit issued its decision in favor of Aereo stating that Aereo did not infringe the exclusive rights of the content owners enshrined in the Copyright Act. According to the court, the transmissions explained above did not constitute public performance. In its decision, the Second Circuit followed the precedent set in Cablevision where the court held that Cablevision’s transmission of DVR-recorded programs were not public performances as they were one-to-one transmissions of a specific program signal.

In the Aereo case, the Second Circuit compared Aereo’s service to a viewer’s ability to record a program for later viewing using a digital video recorder (DVR). While analyzing the elements of public performance right, the Court stated that Aereo’s performance is private not public as it assigns each subscriber an individual tiny antenna at the time the TV program is streamed or recorded and all subscribers performed Aereo’s service themselves and individually. Hence, the Second Circuit concluded that Aereo did not perform the copyrighted TV programs publicly under Cablevision because it transmitted unique copies of those programs that were created at the subscribers’ requests and transmitted at the same time the programs were airing on television.

After the defeat American Broadcasters Inc. (“ABC”) filed petition for a writ of certiorari which was later granted by the US Supreme Court. During oral arguments in April, 2014, Aereo’s complex technological basis for its system design was frequently questioned. Indeed Justice Ginsburg’s question to Aereo’s counsel was whether they came up with this idea of using thousands of mini antennas to avoid any obligation under the Copyright Act. Also, during the oral arguments, Justice Breyer stated that it seemed like Aereo was trying to escape constraints that everyone else was complying with. The Court was trying to distinguish a disruptive technological innovation and a legal invention to circumvent the Copyright regime. 

Supreme Court Decision

Copyright Act §106 grants copyright holders five exclusive rights: reproduction, adaptation, public distribution, public performance, and public display. Anyone who infringes any of these exclusive rights is liable under the Copyright Act. In the current case, the exclusive right the Supreme Court analyzes is the public performance right. In deciding whether Aereo infringed the exclusive right to publicly perform the petitioners’ copyrighted content, the Court addressed the following questions: i) Did Aereo “perform” the copyrighted work? and ii) Did Aereo perform the petitioners’ copyrighted works “publicly”?

In order to decide on these questions, first, the Court addressed the legislative history of the statute. The 1960’s and 70’s witnessed a massive growth in cable television systems that raised several concerns about the impact of the content providers’ right of public performance. In response to two Supreme Court decisions, Fortnightly and Teleprompter, Congress amended the Copyright Act to include the CATV (community antenna television) providers’ transmission of TV programs to viewers in the framework of public performance right. The Transmit Clause that was enacted in 1976 “makes clear that an entity acts like a CATV system itself performs, even when it simply enhances viewers’ ability to receive broadcast television signals”. Also, it is clear in the legislative history that unless the performance is to the public, there is no actionable infringement.

According to Article 106(4) of the Copyright Act of 1976, the copyright owner has the “exclusive right” to “perform the copyrighted work publicly.” The Act’s Transmit Clause defines that exclusive right as including the right to “transmit or otherwise communicate a performance . . . of the [copyrighted] work . . . to the public, by means of any device or process, whether the members of the public capable of receiving the performance . . . receive it in the same place or in separate places and at the same time or at different times.” 17 U. S. C. §101

Answering the first question, the Court held that Aereo “performed” petitioners’ works publicly within the meaning of the Transmit Clause defined above. The Court did not agree with Aereo’s assertions that it was merely an equipment provider whose subscribers were no different than people who record over the air TV programs using their own antennae and a DVR. The Court found the argument unpersuasive that it is the subscriber who clicks watch or record. Aereo only provides the equipment for this service. According to the opinion, it is clear in the Transmit Clause that whoever acts as the CATV system performs the programs, even if the system only enables the subscribers to receive television signals. Hence, operating substantially similar to cable companies, Aereo performs the copyrighted TV programs without complying with the obligations of such companies including the payment of compulsory fees.

In addressing the second question of whether Aereo performed the copyrighted works “publicly,” the Court held that even if Aereo transmitted from user specific copies, using individually assigned antennas making each transmission available only to one subscriber, these technological tricks do not distinguish Aereo’s system from cable systems. Accordingly, “the subscribers to whom Aereo transmits the TV programs constitute “the public” under the Copyright Act because Aereo communicates the same contemporaneously perceptible images and sounds to a large number of people who are unrelated and unknown to each other and who are not possessors or legal owners of the underlying work.” Thus, Aereo transmitted the copyrighted works of the petitioners to the public.

Concerns About Negative Effects of the Decision on New Cloud Technologies

“Communicating content from one physical place to another is “at the heart of Internet-based technologies”. The Internet consists of computers which “transmit or otherwise communicate” information or in some cases a copyrighted work to a private person or to the public which may sometimes result in infringing an exclusive right of a copyright holder. As it is stated above, private performances do not constitute a violation whereas a public performance might. Drawing the line between what is private and what is public is not always easy. Cloud computing which enables consumers to store content on cloud and then transmit it back depend on the understanding that such transmissions are not regarded as public performances pursuant to the Copyright Act. Hence, interpreting the public performance right very broadly might endanger such services which has become a huge sector worth billions of dollars.

Furthermore, some high tech companies such as Amazon and Dropbox have launched cloud-based storage for consumers’ personal use. Even if the Aereo decision assumes that what cloud services offer is playing back copies that consumers already legally acquired, it could be cumbersome for such companies to determine what is legal or what is not legal. The oral arguments showed that the Court was worried about the possible negative effects of the decision on new cloud technologies. In addition, public interest groups, including Center for Democracy and Technology, submitted briefs expressing such concerns and urging the Court not to interpret the Transmit Clause in a manner that would undermine cloud computing and chill the innovation in networked technologies.

Answering those concerns, the majority decision stated that “questions involving cloud computing, [remote storage] DVRs, and other novel issues not before the Court, as to which ‘Congress has not plainly marked [the] course,’ should await a case in which they are squarely presented.” Hence, instead of drawing conclusions that would affect cloud services, the Court sidestepped the issue. In a dissenting opinion written, Justice Scalia said that the Court cannot promise that its ruling will not affect cloud-storage providers and cable-television systems given the imprecision of its result-driven rule.

Another concern is regarding the public’s interest in accessing cheap online TV services. As the Court held, Aereo shall be treated as a cable company and therefore comply with the responsibilities of a cable company, including paying license fees to content owners. That means Aereo will not be able to offer such services to consumers for considerably lower fees. According to the Federal Communications Commission, Aereo’s service price is less than half the $20.55 average price for a basic pay-TV service and almost one eighth of the $61.63 price for the most popular package. This result might hinder the competition in the industry and delay the decrease in prices.

What is Next for Aereo

After the Court found that Aereo’s service was “highly similar” to that of a cable system, Aereo has been seeking ways to stay in business in compliance with the Court’s decision. First, Aereo asserted in New York District Court that the company is clearly entitled to a compulsory license, which is available to cable companies to carry over-the-air broadcasts under § 111 of the Copyright Act. In the meanwhile Aereo requested the Copyright Office to grant a §111 compulsory license; however it was rejected as the Copyright Office reaffirmed its previous view that Internet retransmissions fall outside of § 111.

On October 15, 2014, the District Court held a hearing and Aereo’s counsel presented various arguments on how Aereo could stay in business by paying license fees as a cable operator. Even if the Supreme Court ruled with a focus on only “contemporaneous” viewing and the decision did not reach Aereo’s DVR-like features, the court signaled that it would interpret the decision as if all of Aereo’s system was illegal.

An ex-parte notice disclosing Aereo’s negotiations with FCC has been uploaded on Aereo’s website. Aereo demands the regulators to define it as a Multichannel Video Programming Distributor (MVPD) whose facilities deliver linear channels of video programming such as local, over-the-air broadcast programming. Only time will tell whether Aereo’s efforts to follow the Supreme Court’s decision will be awarded by the District Court and FCC.

Tagged , , Leave a comment

Information Economics: Not Just for Private Business

Berkeley Center for Law and Technology’s Seventh Annual Privacy Lecture was held on October 6, 2014, on Berkeley Law School’s campus. Moderated by Paul Schwartz, the presentation began with Ross Anderson presenting his recent paper, Privacy versus government surveillance – where network effects meet public choice. The panel continued with responses from Carl Shapiro, James Aquilina, and Anupam Chander before opening the floor to audience questions. This post summarizes each speaker’s presentation.

Ross Anderson: Network Effects and Government Surveillance

To lay the foundation for the discussion, Anderson first introduced two views of money and power. The “Bay Area view” is that money and power are all about network effects, the effect that one user of a good or service has on the value of that product to other people; these network effects help create a platform to which others then add value. Anderson contrasted this with the Washington D.C. view, where power is about having more “tanks and aircraft carriers, which is founded on taxation capacity,” and almost nobody speaks of network effects.

Network effects are characteristic of many IT product and service markets. Network effects tend to lead to dominant-firm markets where the winner takes all. Another common feature of IT product and service markets is high fixed costs and low marginal costs stemming from competition that drove down prices to marginal cost of production. This can make it hard to recover capital investment, unless stopped by patent, brand, or network effects. A third common feature of IT markets is that switching technology platforms is expensive, and companies get “locked-in.” Anderson mentioned the Shapiro-Varian observation: that the net present value of a software company is the total switching costs.

The combination of network effects, low marginal costs, and technical lock-in can make dominant-firm market structures very likely, and explain many security and privacy failures.  First, market races lead to the Microsoft philosophy of “ship it Tuesday and get it right by version 3.” In a market race, companies open their systems to appeal to those who can complement it, such as app writers. Once the race is “won,” companies lock down the system in order to extract rents from its use.  Thus, in many markets (Anderson gave the examples of mainframes, PCs, routers, phones, and social network systems), security is added after the system’s creation. The design is aligned with the platform’s interests at least as much as the users’.

On the other hand, privacy suffers from at least the same problems as security. For example, privacy suffers from asymmetric information, because users don’t know what gets done with their data. Hyperbolic discounting can also be an issue, as many users don’t consider or care about the long-term effects of disclosure. Researchers observe the paradox that people say they want privacy but act otherwise, as evidenced by the fact that most privacy startups fail. In a nod to Berkeley Law, Anderson mentioned that the first workshop regarding information security economics was held here in 2002; the industry has since grown to over 100 active researchers, who explore the models of what is likely to go wrong and attempt to measure it.

Anderson also introduced the concept of economics of surveillance, claiming that network effects were a driving force behind mass surveillance. In addition, the concentration of the industry into a few large service firms also made the concept of PRISM foreseeable, and the concentration of the telecoms industry into a handful of large operators similarly made TEMPORA foreseeable. (It was also described by several journalists in its earlier form of ‘Echelon’.)

Outside of the information security economics realm, network effects also matter in the defense/intelligence nexus, as, for example, neutral networks like India prefer to join the biggest network (read, the United States). However, network effects entangle us with “bad” states which use the same surveillance platforms, leading to problems such as the debate over exports to Syria. Thus, network effects present both political and civil rights problems, as they pull “good” and “bad” parties together. Compared to medieval warfare technology, which was all run on marginal costs, these days “to kill a foreign dictator you can use a single missile shot from a drone – because it’s backed by trillions of capital investment.” Thus, Anderson claims, “warfare has gone from labor to capital,” and has created complex technical “lock-in” games. Furthermore, each country within the “five eyes can decide whether to minimize its citizens’ personal data, but only Canada has done so. (Anderson suspects this is because government forms are confidential once completed in Canada, unlike in the US or the UK.) Law enforcement network governance in particular comes in the form of various models from Interpol to mutual legal assistance treaties, and is slow and cautious.

Yet the question remains, is the world dealing with one network or many? Anderson argues that networks tend to merge (i.e. the Internet absorbs everything else). Anderson noted that intelligence resources are already used for rapid solution of exceptional crimes, and raised the examples of the NTAC and the Communications Data Bill in the UK, and PRISM in the US. And what will the day-to-day effect of this kind of world be? Anderson illustrated the impact of this consolidation as such: “is it okay, for example, if we move into a world where every inhabited space has cameras and mics, and the cameras and microphones are sharing information with the cloud, can we presume consent to information sharing? . . . Or does Mommy have to pick up the bear and hit the ‘I Consent’ button before the bear reads the bedtime story to the kids?”

Anderson concluded with examining long-term issues, with implications ranging from international relations to the separation of power and the rule of law. First, he raised that Britain provides access to 30% of the Internet; what effects might this have on the US? Also, if code is law, architecture is police: what are we embedding in the infrastructure and how will it affect our descendants? And above all, we need to solve the governance issue. The Bay Area v. D.C. gap is not just about whether Snowden’s a whistleblower or a traitor; the economic models are almost totally different. Yet, Anderson concluded, economics of security and privacy models pioneered at Berkeley a dozen years ago could apply here, too.

Carl Shapiro: Economics of Network Effects

In response, Carl Shapiro focused on the economic aspects of Anderson’s paper. Specifically, how do we translate the economics of innovation to government surveillance, the government sector, and international relations? This issue is of particular concern for those who work in both national economy and national security. The main issue Shapiro predicts was that we need to understand the networks that are in use today, and answer questions like “How do we think the network economics for the private sector are translated to the public sector, if at all?” and “What is the interface between law enforcement and surveillance operations?” In many ways, the U.S. leads the world with regards to its information capabilities.

Shapiro answered some of the questions with some observations of his own.  First, Shapiro claimed that the economist will state that organizations will matter as well as incentives due to the cost of sharing information across organizational boundaries.  Second, so far, these organizations have not been effective in terms of sharing their best practices to create consistency. Shapiro jokingly concluded by sharing an alternative title to Anderson’s paper: “Network effects meet public sector disorganization and dysfunction”

James Aquilina: Network Effects, Law Enforcement, and Civil Action

James Aquilina responded next, discussing the law enforcement and civil aspects of surveillance. He self identified as cynical, stating the way he thinks about information and user privacy is ultimately that it’s our choice: we could all choose not to connect to a wifi tower right after landing at the airport, or downloading apps that share our data. He noted that it seems as if people act with impatience and demand for the latest and greatest technology with a blind eye to what the price is to their personal privacy. He added that it is personally frustrating that people rarely discuss the risks associated with more restricted intelligence collection. (Aquilina called this negative impact on the communication between government and ISPs the “tragedy of the Snowden affair.”)

On the civil side, Aquilina noted that merging companies are moving so quickly that they are not thinking of security for what they are building or the impact on their consumers. Furthermore, the costs associated with a breach (whether competitive, advanced persistent threat, or insider threat) is “incredible.” Aquilina noted that the overlap of law enforcement and intelligence was growing by sharing a personal anecdote: when he had started at the US Attorney’s office, tips did not involve computer media; now seizure of cellphones, iPads, and computers used by suspects is normal. This has changed the way routine investigations are being conducted, but the law hasn’t actually kept up with this type of technology. Aquilina concluded by calling for a way to deal with digital evidence: “When you think of the effect of Snowden and that kind of revelation, what is unfortunate is that there is less focus on laws that proscribe criminal activity and an effort to bring them current and the way in which technology is now used as instrumentality of a crime.”

Anupam Chander: Global Due Process

The last presenter was Anupam Chander, who discussed the concept of Global Due Process.  First, in response to Aquilina’s thoughts, Chander mentioned that he was not sure he wants cooperation between ISP and government to be without tension, and had concerns with government abuse of information. In particular, he felt like Mr. Anderson’s paper showed that a global information network can become a global spying network, with one problem being that there is no effective legal constraints on U.S. surveillance of non-U.S. persons abroad. In response to the lack of protection in U.S. law for those outside the U.S., foreign governments have begun trying to “unplug” from American internet. Chander noted that he was able to observe this effect in countries like Brazil, Germany, and Russia, who are trying to stop information from leaving the country instead of the usual tactic of preventing information from entering in the first place.

Chander identified a couple of potential solutions to this issue. First, the USA Freedom Act seeks to end some mass surveillance under Section 215 of the PATRIOT Act. It also institutes amicus curiae to FISA Court to “advocate, as appropriate, in support of legal interpretations that advance individual privacy and civil liberties.” Second, all countries should figure out a way to treat all information with global due process in a similar way to create consistency. Until these solutions can be implemented, Chander left the crowd with a self-help tip reminiscent of Aquilina’s comments: data encryption by the users is a strong way to protect your own data.

Tagged , , , Leave a comment

Oracle v. Google – or How a File Cabinet beat Harry Potter

The Oracle v. Google case, currently on appeal before the Court of Appeals for the Federal Circuit, will decide whether APIs (Application Programming Interfaces) are copyrightable subject matter under section 102(a) and 102(b) of the Copyright Act. But it is also about Harry Potter and a file cabinet – the metaphors Oracle and Google used to explain the character of APIs to the court, Oracle referring to Harry Potter, and Google literally wheeling a file cabinet into the court room to make a point.

So sticking to the metaphors used by the parties, this post is about how Oracle’s Harry Potter got knocked off his broomstick in mid-air by the file cabinet Google hurled at him. It provides an overview of the history leading to the Oracle v. Google case, the technical and legal background, and the reasoning Judge William Alsup used in his order in favor of Google.

The Story Behind the Case

Sun Microsystems developed the Java programming framework, comprising, inter alia, a system of interfaces (APIs) and an implementation of a functions library based thereon, both being commonly referred to as “Java API”. In 2010, Oracle acquired Sun and merged it with Oracle USA, to become Oracle America. The distinctive feature of the Java programming framework is that it allows programs written in Java to run on many different platforms, without the developer having to rewrite the program for all the different operating systems. For that feature, Sun used the catchphrase “Write once, run anywhere” to promote Java.

Google had been developing Android, an operating system aimed at portable devices, since 2005 and released it in 2007. Google first tried to negotiate a license with Sun to use and adapt the Java platform for mobile devices, but the negotiations failed. So Google came up with its own implementation of the Java environment in Android, in order to allow programs that had been written by third party developers in Java to run on Android as well.

Oracle brought suit against Google in August 2010, claiming patent and copyright infringement. Procedurally, Judge Alsup split the case into three different phases covering issues of copyright, patents, and (if necessary) damages. The focus of this post is on the copyright prong only.

The Technical Background in a Nutshell

For a better understanding of the copyright law issues brought up by this case, it is necessary to take a look at some of the underlying technical facts. Allegedly, Judge Alsup even learned to code in Java for the trial, and he presents an extensive introduction into the Java programming framework (p. 4-13 of the order).

In a nutshell, the technical background can be distilled into the following five technical terms:

  • API,
  • function,
  • method,
  • declaration/header, and
  • (method) body.

The API (Application Programming Interface) is the definition of the interface, the abstract specification of how different programs interact with each other (e.g. like the reference system used in a library to help users locate books).

A function is a specific subroutine of a computer program. It is a sub-program that has been sourced out of the program code for efficiency reasons (e.g. like the print-function of an operating system that allows different applications to use that function). In the library-metaphor, this would be the story that a specific book tells.

A method is the concrete implementation of such a function, consisting of a declaration/header and the body of the method. In the library-metaphor, this would be the actual book that contains the specific story.

The declaration/header of the method tells the programs what the function of that method is and how it can be invoked. In the library-metaphor, this would be the title and reference code for a book that one looks up in the library reference system in order to find it in the library.

The body of the method contains the code implementing the function of that method. In the library-metaphor, this would be the actual text of a book in which the story is told (as distinguished from its title and reference number).

Where’s the Infringement?

Google wrote most part of Android’s Java environment itself, in particular the implementations of the functions in the Java libraries (the body of the methods). However, Google used in part exactly the same interface definitions (APIs) as in Oracle’s Java version. By using the same APIs, Google enabled application programmers to call certain functions by the same names in Android’s Java version as in Oracle’s Java version. This made it easier for application programmers to develop compatible programs and, to a certain extent, allowed programs already written in Java to run on Android without the programmer having to rewrite it.

In the copyright prong of the Oracle v. Google case, there was agreement that Google had not literally copied the libraries (i.e. the collections of methods), but created its own implementations (i.e. Google had written its own code in the body of the methods to achieve the same function). The issue at hand was rather whether Google had violated copyright law by its verbatim use of the the declarations/headers, thus replicating the interfaces (APIs) and the structure, sequence and organization (SSO) of the libraries in question.

The Copyright Question at Hand – and its Relevance

The copyright law question at the heart of the Oracle v. Google case is thus whether the APIs and their implementation used by Google in their own Android Java version are copyrightable subject matter under section 102(a) and 102(b) of the Copyright Act.

The answer to this question is of great relevance to the software industry, as in today’s interconnected world, no computer program works as a standalone application, but communicates and interrelates with various other computer programs (e.g. operating systems or other application programs). But in order for programs to communicate, they need to be interoperable. And Interoperability is achieved by means of interfaces, by standardized processes of exchanging and receiving data – by APIs.

Thus if such APIs are found to be copyrightable subject matter, copyright law might confer a monopoly right and thus enable a copyright holder to preclude (or at least control and financially benefit from) any future development – which might impede innovation. On the other hand, developers might argue that such a grant of a monopoly right will offer them a valuable incentive – leading to more and faster innovation.

The Copyright Law Background

Section 102(a) and 102(b) of the Copyright Act define copyrightable subject matter as “original works of authorship fixed in any tangible medium of expression”, 102(a), with the exception of “any idea, procedure, process, system, method of operation, concept, [or] principle [...],” 102(b).

While the requirements of authorship and fixation did not raise any issues in Oracle v. Google, the requirements of originality and expression did.

Originality and the Words and Short Phrases Doctrine

The threshold to meet the originality requirement is rather low and easily met: “Original, as the term is used in copyright, means only that the work was independently created by the author (as opposed to copied from other works), and that it possesses at least some minimal degree of creativity.” Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 345 (U.S. 1991).

Nevertheless, certain categories of works may lack the required degree of originality if they are so blunt, short, or obvious that the in fact lack even the slightest “spark of creativity”: This “de minimis” standard excludes words and short phrases from copyright protection, or as the U.S. Copyright Office states: “Copyright law does not protect names, titles, or short phrases or expressions. Even if a name, title, or short phrase is novel or distinctive or lends itself to a play on words, it cannot be protected by copyright.” The courts refer to this principle as the “words and short phrases doctrine” (cf. Sega Enters. v. Accolade, Inc., 977 F.2d 1510, 1524 Fn 7 (9th Cir. Cal. 1992)).

Expression and its Nemeses

Section 102(b) of the Copyright Act contains carve outs from copyrightability, by defining what is not considered “expression” as per section 102(a). The courts have come up with several doctrines and tests to apply section 102(b) in practice:

  • the Altai test;
  • the idea/expression respectively process/expression dichotomy;
  • the merger doctrine, and
  • the scènes à faire doctrine.

The Altai test (also Abstraction-Filtration-Comparison or AFC-test), defines a three-step procedure in order to determine whether the non-literal elements of two computer programs are substantially similar, in order to ascertain whether a computer programs non-literal – but nevertheless copyrightable – “structure, sequence and organization” (SSO) have been infringed upon. The Altai test was formulated in Computer Assocs. Int’l v. Altai, 982 F.2d 693 (2d Cir. N.Y. 1992), based on ideas first expressed by Judge Learned Hand in Nichols v. Universal Pictures Corp., 45 F.2d 119 (2d Cir. N.Y. 1930).

The idea/expression dichotomy (or distinction) stands for the basic understanding in copyright law that the pure ideas understood as abstract principles or fundamental truths are not protectable, only their concrete expression. The process/expression dichotomy (or distinction) stands for the notion closely related to the idea/expression dichotomy that not just ideas (including concepts, principles and discoveries), but also procedures, processes, systems or methods of operation need to be distinguished from their concrete expression, as only the latter (expression), but not the former are protectable by copyright. There is no clear agreement among scholars as to where these concepts were derived from, but most commonly reference is made to Baker v. Selden, 101 U.S. 99, 102 (1880) (for a more extensive analysis cf. Pamela Samuelson, Why Copyright Law Excludes Systems and Processes from the Scope of its Protection, 85 Tex. L. Rev. 1921 (2007)).

The merger doctrine is the exact antipode of the idea/expression respectively process/expression dichotomy in the case where the idea or the process is so inextricably intertwined with the expression that they cannot be separated or distinguished. As Samuelson puts it: “The merger doctrine holds that if there is only one or a very small numer of ways to express an idea, copyright protection will generally be unavailable to that way or those few ways in order to avoid protecting the idea.” Pamela Samuelson, Questioning Copyrights in Standards, Boston College Law Review, Vol. 48:193, 215 (2007).

The scènes à faire doctrine refers to “must do” elements necessary to certain works, to “stock ideas”: “The French use a very expressive phrase in dramatic literature: ‘scenes a faire’ that is, scenes which ‘must’ be done.” Schwarz v. Universal Pictures Co., 85 F. Supp. 270, 275 (D. Cal. 1945). Although this doctrine was first developed in regard to literary works, it became to be understood in a more general manner, not just regarding standard literary works, but also in regard to computer programs, and not just in regard to certain “stock ideas”, but to various external factors constraining an author’s creative choices: “The scenes a faire doctrine, originally developed to recognize that certain plot structures are to be expected from works exploring certain literary or dramatic themes, has been adapted, especially in the software copyright case law, to recognize that epressive choices of subsequent authors may become constrained over time by the emergence of industry standards.” Pamela Samuelson, Questioning Copyrights in Standards, Boston College Law Review, Vol. 48:193, 215 (2007).

The Metaphors used by Oracle and Google

In order to explain to the court how best to apply these principles, tests and doctrines to the APIs at the heart of the case, both Oracle and Google used metaphors. They both tried to present their point of view regarding copyrightability of APIs by choosing a metaphor that would, once the court applied the above mentioned doctrines, lead either to a finding of copyrightability (Oracle) respectively non-copyrightability (Google).

Oracle made its point for copyrightability by comparing the affected method libraries to a Harry Potter novel:

“Ann Droid wants to publish a bestseller. So she sits down with an advance copy of Harry Potter and the Order of the Phoenix – the fifth book – and proceeds to transcribe. She verbatim copies all the chapter titles – from Chapter 1 (‘Dudley Demented’) to Chapter 38 (‘The Second War Begins’). She copies verbatim the topic sentences of each paragraph, starting from the first (highly descriptive) one and continuing, in order, to the last, simple one (‘Harry nodded.’). She then paraphrases the rest of each paragraph.”

(Oracle Opening Brief and Addendum of Plaintiff-Appellant, 1, February 11, 2013).

Google, on the other hand, referred to Section 102(b) of the Copyright Act and used a file cabinet to point out that APIs and their SSO are just a system of organization, a method of operation that allows to call up specific functions in a structured way:

“So just by writing the API, Java.lang.Math.Max(), that source code appears and comes into the program.

And now I actually created — excuse me, your Honor. I’m going to approach the cabinet. I actually created a cabinet to illustrate this because, again, I think it’s important for everybody to understand what we’re talking about when we say structure and organization of an API.

This is a cabinet. This is the Java language package. It happens to be a file cabinet. There are 37 of these that they are complaining about. They are not complaining about using the language, because that’s free. The names were all free. The complaint is about the system of organization. But you need that in order to program in Java.

So if I want to find this max() function. I write java.lang.Math.max() and the system knows I go to the java.lang package. I open the Math drawer.

Now, in the Math drawer are all the methods that are in the math class in Java. And by the way, they are typically organized alphabetically. Nothing too magic about that. They are organized alphabetically. But one of them would be my max() folder. And I take my max() folder out and inside it is the source code. That’s the original source code that Google wrote. [...]

And what we’re talking about here is nothing more than this system of organization that has been around for years and programmers had been using whenever they program in Java. That’s what is at issue in this case.”

(Transcript of Jury Trial Proceedings, 263:2-264:6, April 17, 2012, Case 10-cv-03561, Doc. 943 (emphasis added))

Judge Alsup’s Metaphor and His View on Copyrightability of APIs

In his order of May 31, 2012, Judge Alsup also uses an analogy and characterizes APIs by using the picture of a library:

“An API is like a library. Each package is like a bookshelf in the library. Each class is like a book on the shelf. Each method is like a how-to-do-it chapter in a book. Go to the right shelf, select the right book, and open it to the chapter that covers the work you need.”

(Order re Copyrightability of certain replicated elements of the Java application programming interfac, 5:16-5:18, Case 10-cv-03561-WHA, Doc. 1202, May 31, 2012).

In the first pages of his order, Judge Alsup gives a detailed introduction into the technical intricacies of the Java programming framework (p. 4-13), which allows him to clearly distinguish what exactly Oracle accused Google of having replicated:

“All agree that Google was and remains free to use the Java language itself. [...] All agree that the six-thousand-plus method implementations by Google are free of copyright issues. The copyright issue, rather, is whether Google was and remains free to replicate the names, organization of those names, and functionality of 37 out of 166 packages in the Java API, which has sometimes been referred to in this litigation as the “structure, sequence and organization” of the 37 packages.”

(Order re Copyrightability of certain replicated elements of the Java application programming interfac, 6:25-7:03, Case 10-cv-03561-WHA, Doc. 1202, May 31, 2012).

Judge Alsup then traces the development of copyright law through the following cases and materials:

Based on that extensive review, Judge Alsup concludes that the issue at hand in the Oracle v. Google case is controlled by (a) the merger doctrine, (b) the words and short phrases doctrine, (c) the idea/expression respectively the process/expression dichotomy/distinction, and (d) the “no sweat of the brow” doctrine according to Feist (33:13-34:05 of the order).

In application of these doctrines, Judge Alsup concludes that “[f]unctional elements essential for interoperability are not copyrightable” (34:01-34:02 of the order) and that even though there might be creativity in the definition and creation of APIs, they are nevertheless a system or method of operation and as such not copyrightable subject matter:

“That a system or method of operation has thousands of commands arranged in a creative taxonomy does not change its character as a method of operation. Yes, it is creative. Yes, it is original. Yes, it resembles a taxonomy. But it is nevertheless a command structure, a system or method of operation – a long hierarchy of over six thousand commands to carry out pre-assigned functions. For that reason, it cannot receive copyright protection – patent protection perhaps – but not copyright protection”

(37:15-38:02 of the order)

In conclusion, Judge Alsup thus followed the argument made by Google in its file cabinet analogy (for which Judge Alsup substituted his library metaphor) and held the APIs and the SSO of their implementation in the method libraries to be unprotectable under Section 102(b) of the Copyright Act.

The Pending Appeal

Both parties have appealed Judge Alsup’s order, and the appeal is currently pending before the U.S. Court of Appeals for the Federal Circuit (due to the fact that the original case contained patent law questions). The oral arguments have been held on December 4, 2013, and as of today, April 2014, an appellate decision could be expected anytime soon.

Florian Mueller, author of the FOSS PATENTS blog, interprets the proceedings of the oral arguments as a sign that Judge Alsup’s order will be reversed (Florian Mueller, Oracle apparently winning Android-Java appeal against Google — API declaring code copyrightable, December 04, 2013, and Forian Mueller, Detailed analysis of Federal Circuit hearing in Oracle v. Google: copyrightability is certain, December 06, 2013).

However, other sources have questioned Mueller’s neutrality by pointing at preexisting relationships between Oracle and Mueller (Charles Cooper, Oracle names bloggers, others it paid to comment on Google trial, August 17, 2012), as disclosed by Oracle according to a court order.

Outlook

It is far from clear how the Court of Appeals will decide. Based on the thorough technical and copyright law analysis by Judge Alsup, the court might affirm the district court’s decision. But based on the inquisitive proceedings of the oral arguments, one should not be too surprised if Judge Alsup’s order were to be reversed.

In either case, the question at the heart of the Oracle v. Google case has the potential to go all the way to the Supreme Court and to set a new landmark case in the field of software copyright law.

To sum it up using the parties’ metaphors, Oracle’s Harry Potter has been hit by Google’s file cabinet and knocked off his broomstick in the district court. But the day isn’t over yet, and with a helping hand of the Court of Appeals, Harry Potter might just get back up on his broomstick yet again – for his final battle against the file cabinet to be fought before the Supreme Court.

Tagged , , , , , , , , , , , , , 1 Comment

Winners of 2014 Notes and Comments Competition

BTLJ is proud to announce the winners of the 2014 Student Writing Competition. Congratulations to our winners, and thank you to all participants for your submissions!

First Place: “Compelling Passwords from Third Parties: Why the Fourth and Fifth Amendments Do Not Adequately Protect Individuals When Third Parties Are Forced to Hand Over Passwords,” by Sarah Wilson (Northwestern University School of Law)

Second Place: “Patenting Proteins after Myriad,” by Priti Phukan (University of San Diego School of Law)

Third Place: “Establishing Standing in Risk of Future Identity Theft Cases,” by Rebecca Dell (University of Pennsylvania School of Law)

Aldo J. Test Award for Best Berkeley Law Submission: “Proposed Limitations on a Copyright Exemption for Museums,” by Julie Byren (UC Berkeley School of Law)

/ Leave a comment