Tipp Sheet 2.1

Digital Millennium Copyright Act and Damages for the Least Cost Avoider

by Nicole Fagin

The proliferation of the Internet has led to widespread globalization and commercial growth, as people are now able to share content on a much greater scale. Yet as with most things, the Internet’s exponential growth has led to a fair share of growing pains. Digitalization and sharing of online content oftentimes come with the unwanted side effect of increased costs to the many content owners whose copyrights are now easily infringed. As a result, the Digital Millennium Copyright Act (DMCA) was created as an effort to balance the interests of content owners, content sharers, and Online Service Providers (OSPs) that sometimes facilitate the content sharing process.

Despite the 17-year existence of the DMCA, the government is still ironing out certain operational details pertaining to the notice and takedown provisions. One such detail relates to the allocation of risk and liability for providers that host infringing content online. As it stands, OSPs such as YouTube currently bear the burden of taking down user-contributed infringing content from their servers, lest they risk secondary infringement liability. So far, the government has been unable to determine an appropriate measure for statutory damages in the context of large-scale secondary infringement liability. In order to address this and other issues related to the provision, the U.S. Department of Commerce is conducting a series of roundtable discussions to seek out other solutions.

A recent proposal by federal appeals court judge Richard Posner suggests that the solution is a matter of economics—one that has already been addressed by common law tort theory. Judge Posner thinks that liability should be based on an efficient risk-bearing standard that shifts the legal burden to those who are in a position to most cost-efficiently minimize the harm—the least cost avoider. Other experts and scholars agree that by employing a standard based on efficient harm avoidance, parties that are uniquely positioned to avoid or minimize harm would be sufficiently incentivized to do so. At the same time, the least cost avoider would not be expected to take precautions in cases where the costs of harm avoidance outweigh the value of the harm. Posner and supporters believe that, by adopting the efficiency-based liability standard, the DMCA would better balance the need to protect the rights of content owners with the interests of content sharers and OSPs.

Despite the judicial precedents and academic support that lend credence to Judge Posner’s proposal, technology company supporters do not think that the determination of secondary infringement liability should be colored by the nuances of economic analysis. Their solution is more black-and-white—as long as service providers block or remove material for which they have exact or specific knowledge of infringement, they should be completely immune to copyright liability.

But least cost avoider advocates shun the idea of an absolute bar to secondary infringement, stating that it flies in the face of well-established legal responsibility principles and leaves OSPs with zero incentive to avoid harm. Only time will tell if and how this issue will be resolved.



A Sweet Resolution for Hershey

By Dmitriy Molchanov

Colorado’s booming recreational marijuana sales to the tune of $34.1 million per month have not just attracted the attention of budding entrepreneurs. In June of 2014, they also caught the attention of Pennsylvania-based Hershey Co.. In fact, for the past five months the candy-maker has embroiled itself in a federal lawsuit against TinctureBelle LLC, a Colorado company manufacturing marijuana-infused chocolates.

The claims include trademark infringement, trademark dilution, and unfair competition sparked by TinctureBelle’s marijuana-laced knock-offs of Hershey’s Reese’s, Heath, and Almond Joy candies. As evidence, Hershey presented side-by-side photographs comparing its packaging to that of TinctureBelle’s “Hashees,” and “Ganja Joy.” It also cites testimony from parents and doctors alleging that children have consumed the highly potent TinctureBelle candies by mistake, prompting a rash of hospital visits.

The complaint further alleges that because families and individuals trust Hershey to provide “delicious treats for people of all ages,” confusion as to source or sponsorship of these marijuana-infused products tarnishes Hershey’s reputation and goodwill. In fact, the company stressed that any association between itself and adult-oriented activities would harm the family-friendly image its brands have developed over generations.

Hershey Co. sought injunctive relief and damages, but the two companies settled in October 2014. Under the terms of a consent order, TinctureBelle agreed to discontinue use of any infringing names while recalling and destroying unsold inventory.

Interestingly, this marks the second time Hershey has sued a marijuana edibles company for trademark infringement. In June, the company also sued a Seattle dispensary for its sale of infused peanut butter cups under the brand name “Reefer’s.” Hershey’s agreement with TinctureBelle prohibits use of that same term in any products containing peanut butter.

The case also follows Hershey’s more speculative outing against Maryland Republican State Senator, Steve Hershey. Federal courts granted a preliminary injunction against the Senator, whose campaign ads flashed the name “Hershey” in white letters in a dark brown background. The complaint alleged a likelihood of confusion between his promotional material and the chocolate company.

For more, the case is Hershey Co. v. TinctureBelle, LLC, case number 14-cv-01564-WYD, in the U.S. District Court for the District of Colorado.



Canada Takes Counterfeiting Head-On

By Dmitriy Molchanov

For years, the international community has criticized Canada’s regulatory response to counterfeit products. In response, two parliamentary committees introduced the Combating Counterfeit Products Act (“CCPA”) back in 2007. It has taken six years for the act to make it to parliament’s floor. This month however, Parliament’s third reading of the Act brought it inches from approval.

The new act’s civil, criminal, and border measures promise considerable reforms. Trademark owners can:

1. Expect earlier sanctions on counterfeiters. The bill allows trademark owners to bring civil action against counterfeiters before they distribute their goods. In fact, new civil causes of action sanction manufacture, distribution and possession of counterfeit goods upon proof of intent to sell.
2. Leverage new criminal offenses to deter offenders. In addition to new civil penalties, the bill also promises fines and jail time for counterfeiters. This expansion of criminal liability enables officers to seek judicial authorization for wiretaps against suspected offenders.
3. Count on a completely revised border regime. The bill allows copyright owners to submit “requests for assistance” to the Canadian Border Services Agency. Upon approval of a request, the agency will detain commercial shipments of suspected counterfeit goods for investigation. The bill further authorizes border officers to furnish information about shipments and their importers to copyright owners for use in civil proceedings.
   

Despite these sweeping changes, some argue that the bill does not go far enough. The most persuasive attacks highlight the bill’s demands on the Canada Border Services Agency at a time when its funding has nosedived. Critics like Bearskin & Parr’s Adam Bobker have noted three additional weaknesses:

1. Lack of a statutory damages provision complicates cases. Damages in counterfeit products claims remain notoriously difficult to prove. Absent a statutory minimum in cases where damages prove elusive, the bill may prove ineffective.
2. Even strong suspicion does not guarantee detainment. For instance, the bill does not give authority to border agents to detain international shipments moving through Canadian checkpoints.
3. The cost of detaining shipments may prove prohibitive. The bill would make copyright owners responsible for any costs incurred in detaining counterfeit goods. While this may not affect large corporations, smaller trademark owners may suffer.
   

   
The critiques have not prevented copyright owners and Members of Parliament from sounding their support. Both parties agree that the CCPA represents considerable progress in shielding consumers from the dangerous counterfeit goods currently pervading Canadian markets.



What Happens at the Doctor's No Longer Stays at the Doctor's

By Amy Mahan

Lewis v. Superior Court of California, a recent California case concerning whether the state's medical board breached patient privacy when it used data from a state prescription database – (CURES) – to discipline a physician, has brought scrutiny upon privacy issues surrounding medical databases.  Safeguards for access, infringement upon patient privacy, and ownership of electronic health records are points of contention that force a closer look at how HIPAA and current privacy laws need to be strengthened or relaxed.

State prescription drug monitoring programs have been created to prevent doctor shopping and to track doctors’ and patients’ prescription information.  Pharmacies can track prescription information to ensure that customers are not seeing multiple physicians to get controlled substances.  However, these databases include more information than necessary simply to track prescription of controlled substances—they also track all prescriptions written for uncontrolled substances.

The California Supreme Court will soon decide whether the state’s medical board breached patient privacy when it used data from CURES to discipline a physician, Dr. Alwin Carl Lewis.  The accusations against the doctor stem from a single patient complaint that the doctor allegedly made comments that the patient should lose weight and start a diet that the patient considered unhealthful.  The Medical Board opportunistically used this complaint to justify examining the doctor’s prescribing habits for several patients including the complainant, even though the doctor’s prescribing practices were not at issue.  In addition, during the search the Medical Board used this information to demand other patients’ medical histories via administrative subpoena.  During this investigation, the Medical Board found that the doctor had overprescribed controlled substances for two other patients during a short period, but found no evidence of long-term misconduct.  The doctor was given two years probation. 

This case concerns both doctors’ and patients’ privacy rights.  The Medical Board was given unlimited access to doctors’ and patients’ prescription records without a warrant and based on a single complaint wholly unrelated to the doctor’s prescription writing habits.  In the pending decision, the California Supreme Court will have to decide whether the Medical Board has the authority to search the CURES database without warrant or showing of good cause.  Without such requirements, CURES will likely become a tool to pry into a physician’s ability to practice medicine, even when only a minor, nonmedical complaint is made.  This could also have the effect of making doctors more conservative and defensive, especially in providing unwelcome messages about diet and exercise to patients.

Patients should also be aware that when they receive prescriptions for controlled or uncontrolled substances, they could come under governmental surveillance. Although the government may have legitimate interests in conducting investigations, the ease of access and the scope of the information that can be derived from these databases threaten the right to privacy pertaining medical conditions and personal information.



Smart Phones Get Smarter About Encryption

By Amy Mahan

Apple, and subsequently Google, have proposed to employ new mobile operating systems that would privilege only users to decrypt the data stored on their devices.  The new encryption scheme elevates customer privacy, but at the cost of alienating local and federal law enforcement as well as forcing Congress to address the precarious balance of privacy concerns against security fears.

Several United States governmental officials have spoken out about the new encryption schemes. Former Attorney General Eric Holder has described the new encryption scheme as “worrisome,” as it would thwart law enforcement agencies’ ability to protect citizens from criminal activity and threats to national security.  Holder suggests that there are other mechanisms that could protect personal privacy while still permitting enforcement of the law.  FBI director, James Comey, has also been vocal in criticizing Apple and Google’s new encryption schemes as dangerous to law enforcement and national security.  Comey has appeared on a two part CBS 60 Minutes special episode, in which he criticizes the two companies for allowing people to “place themselves beyond the law.”

In response to the Snowden revelations of June 2013, technology companies received heavy criticism for cooperating with U.S. security and law enforcement officials by providing them with access to customer data.  The new encryption-based mobile operating systems are clear responses to this criticism and to the consequently rekindled sensitivity to privacy concerns.  These technology changes have been available for many years, but their implementation will finally make it technically infeasible for Apple or Google to respond to government warrants for extraction of data.  Lack of pushback from the CIA or NSA, however, has led some technology experts to suggest that the security agencies already have the ability or will have the ability soon to crack these encryption schemes.

It is unclear how and whether the Justice Department or the FBI will be able to reverse or mitigate the Apple/Google encryption lock out without congressional action.  The Communications Assistance for Law Enforcement Act, which was passed twenty years ago, required that telecommunications companies provide a means to carry out wiretap orders for law enforcement agencies.  However, this act was not adapted for the Internet age and does not cover mechanisms for providing data related to emails or Internet searches.  Administrative agencies may pressure Congress to enact legislation that requires a backdoor bypass to cell phone passcodes, legislation that targets phone users directly for phone records and penalize for refusal to reveal passcode upon warrant, or legislation that requires cellphone providers to store certain data independent of the phone.

However, after the 2013 Snowden revelation, there is an inclination in Congress to prioritize privacy concerns over security concerns.  For example, a recent amendment was passed that expressly forbids the NSA from forcing private companies to introduce a backdoor bypass or malware into their products.  While the emphasis in Congress is currently focused on personal privacy, the pendulum may swing in the direction of security as escalating terrorist threats in the Middle East make national security a more immediate threat.

Global issues are in consideration here as well. China just granted Apple the right to market the new iPhone, on the condition that Apple not build a backdoor bypass for any government agency.  If the United States mandates such a bypass, it is likely that countries might demand equal access to such information.



Grooveshark Loses Its Groove in Copyright Lawsuit

By Nicole Fagin

Grooveshark, an online service provider (OSP) of streamed music that claims to have 35 million users and a library of 20 million songs, somehow managed to maintain its groove amidst constant attacks by the recording industry for alleged copyright infringement over the past few years. However, a ruling by the U.S. District Court for the Southern District of New York may trigger the end of Grooveshark’s good fortunes.

On September 29, 2014, Judge Thomas P. Griesa granted summary judgment against Grooveshark in a copyright infringement suit filed in 2011 by nine music labels, including Universal Music Group (UMG), Warner Bros. and Sony Music Entertainment. UMG Recording v. Escape Media Group, 11 Civ. 8407, 2014 U.S. Dist. LEXIS 137491 (S.D.N.Y. Sept. 29, 2014). The plaintiffs joined forces after a prior infringement suit by UMG unveiled that Grooveshark’s employees had uploaded thousands of infringing files to the company’s Central Music Library. Grooveshark’s parent company, Escape Media Group, as well as founders Joshua Greenberg and Samuel Tarantino, were named as defendants.

The ruling carved a large hole into Grooveshark’s long-standing defense. Grooveshark has consistently claimed that the safe harbor provision of the Digital Millennium Copyright Act (DCMA)—a federal law that limits the infringement liability of OSPs under certain circumstances—shields it from liability. However, Judge Griesa essentially revoked Grooveshark’s “Get-Out-Of-Jail-Free” pass by focusing on the pressure that the parent company’s officers placed on its employees to acquiesce in and participate in the music-sharing enterprise.

Among the evidence considered was a company-wide message from Greenberg, Grooveshark’s Chief Technology Officer. Greenberg encouraged officers and employees to download and share as much music as possible to quickly grow Grooveshark’s network. He also stated: “there is no reason why ANYONE in the company should not be able to do this, and I expect everyone to have this done by Monday… IF I DON’T HAVE AN EMAIL FROM YOU IN MY INBOX BY MONDAY, YOU’RE ON MY OFFICIAL SHIT LIST.” (Emphasis in original). Tarantino sent similar emails to officers and employees. Greenberg also offered to allow employees access to his home computer to expedite the upload process.

Judge Griesa also considered evidence indicating that Grooveshark executives were aware that its business model relied on using infringing music. Grooveshark’s DCMA system generated automatic infringement notifications to users who uploaded files that were subject to the DCMA takedown requests initiated by the copyright owners. According to the evidence, Grooveshark sent thousands of those notifications to almost all of its officers and employees for files they uploaded to Grooveshark’s servers. Escape Media’s chairman admitted that Tarantino and Greenberg “bet the company on the fact that [it] is easier to ask forgiveness than it is to ask permission”.

While it may have been easier for Grooveshark to ask for forgiveness, the question of whether they will be able to afford to pay the price of the plaintiffs’ unwillingness to forgive remains unanswered. As the case moves into the damages phase, Grooveshark may face a multimillion-dollar ruling that could relegate it to the OSP graveyard among predecessors such as Napster and Grokster.

In the meantime, Grooveshark is assessing its next steps and attorney John J. Rosenburg has stated that the company “respectfully disagrees with the court’s decision” and may consider appealing it.