New John Doe Copyright Infringement Suit Filed in Connecticut

A lawsuit relating to online copyright infringement of synthesizer software using “peer-to-peer” networks was filed recently in Connecticut District Court.  The case is captioned reFX Audio Software, Inc. v. Does 1-89.  The complaint alleges that certain individuals and Connecticut residents committed acts of copyright infringement through the use of a common “peer-to-peer” (“P2P”) file transfer protocol known as BitTorrent.  

A common tactic in mass copyright infringement lawsuits is the use by plaintiffs of “tracking software” which identifies the internet protocol addresses (“IP Addresses”) that were allegedly used to commit acts of software piracy. 

By way of background, Internet service providers, (i.e., Comcast, Cox, etc.) provide the account holders with specific IP addresses from which users can access the Internet.  In these lawsuits, attorneys bringing the lawsuits allege that each IP address is unique and is therefore linked to a specific user account. In order to identify the allegedly infringing users, reFX hired a Connecticut attorney to file a motion with the court, asking to conduct discovery in order to learn the identities of the account holders.  If granted by the court, the attorney for reFx will issue a subpoena to each of the Internet providers requesting that they turn over information (typically name, address, telephone number) for the account holder.  

On March 20th  Judge Janet Hall granted Plaintiff’s motion for leave to take discovery in the reFX Audio case.  As a result, certain Internet providers have now sent letters to cable customers and account holders notifying them of the pending lawsuit.  Typically, Internet providers will wait 60 days to allow  the account holders to seek legal counsel prior to providing the court-ordered personal information.

If you have received a letter from your Internet provider identifying your IP address as having participated in the alleged copyright infringement of reFX software, read here from our earlier post on the issue for next steps and to consider if you need to hire an attorney to represent you. 

We already have received calls in response to this lawsuit.  Many callers have read or been told to ignore these letters.   Each circumstance is typically unique in these cases, and there is no one size fits all defense.  Do not assume that ignoring the letter will result in the problem going away.  While it is true that in some cases ignoring the letter is an appropriate response, it many other cases the risks are too high to simply ignore the problem.  Once you are fully informed of all of your options such as, filing motions to quash, settling or compromising the claim, defending the action, or ignoring it,  you can then decide the proper cost/benefit for your case.

Business Lawsuit Roundup

New Connecticut business litigation decisions and lawsuits of interest for February 2011:

Appellate Decisions:

Schirmer v. Souza

The Appellate Court upheld an award in favor of the plaintiffs on claims of unjust enrichment concerning renovations to a residence on defendants’ property. In a somewhat strange set of facts, the plaintiffs loaned money to the occupants of a home thinking they had title when the defendants actually had title. The defendants sold the house after the renovations.  Plaintiffs expected  over $100,000 from the sale of home to cover the renovation costs and instead got nothing.  Plaintiffs sued an recovered   based on unjust enrichment. 

Gateway, Kelso and Co. v. West Hartford No. 1, LLC

The Appellate Court upheld denial of summary judgment holding that a court finding in a pre-judgment proceeding could not provide the basis for summary judgment.  Plaintiff moved for a prejudgment remedy and it was denied because the defendant raised a defense based on the plaintiff’s failure to be licensed.  The defendant then tried to use that same ruling to obtain a judgment in the case.   The trial court denied the motion finding that the earlier ruling was not sufficient.  The Appellate Court upheld the denial of summary judgment and agreed that the ruling in the prejudgment remedy proceeding could not be the basis of the summary judgment ruling.

Tzovolos v. Wiseman

The Appellate Court adopted the trial court’s findings in full in this case involving two complex commercial disputes over the ownership and security interests in restaurant equipment.  The plaintiffs alleged breach of a purchase and sale agreement and a promissory note related to the equipment. The most significant aspect of the decision is the trial court’s decision to hold the individual defendants liable for the corporate defendants.

Trial Decision:

Directory Assistants, Inc. v. Albano

This case was filed in the federal district court over breach of a non-compete agreement.  The parties reached a stipulated settlement requiring the defendant to either file for bankruptcy or pay plaintiff $66,000.00 by way of a stipulated judgment.  At the time of the settlement agreement, the defendant was not sure of his ability to file for bankruptcy.  After agreeing to settle, the defendant either changed his mind or was not able to file for bankruptcy.  The defendant then tried to back out of the settlement.  The trial court ruled in plaintiff’s favor following arguments on a motion to enforce the settlement agreement. The court ruled that a litigant cannot agree to a settlement and then change his mind after the fact.  The court entered judgment.

New Lawsuits:

Coach, Inc. v. Tropical Sun, LLC, et al

This is a trademark infringement action under the Lanham Act, and a copyright infringement act under the Copyright Act. The action is brought by  Coach , well known for its leather made products like handbags and wallets. Coach owns several trademarks in various classes for its goods dating back to 1963 for leather goods and wallets. Coach alleges that its trademark is famous.  Coach also alleges that many of the combinations or design elements on its products are "protected works" under the Copyright Act.  Coach alleges that the defendants are selling look a likes from a retail store in Connecticut. 

The lawsuit gives some insight as to how trademark owners can police their products.  In this case, Coach sent a private investigator into the store to purchase the fake Coach products.  The products were retailing for far less than Coach’s genuine products.

Jacqueline Millan v. AIG

This is a whistleblower lawsuit.  Ms. Millan alleges she was fired from AIG Financial Products after identifying irregularities in AIG stock trading. She alleges that she was employed as a compliance associate and reported the irregularities to her supervisor and then was "shut out of the investigation and subjected to intimidation."  She alleges she was fired shorty thereafter.  The complaint seeks recovery for retaliatory discharge under Sarbanes-Oxley Act and Connecticut’s whistleblower law (31-51q).  The irregularities related to AIG employee stock trades at time when AIG was considering bankruptcy.

Business Blog Round Up: YouTube, Coffee Cups, Anna Nicole and Identify Theft

 

  • Ashby Jones of Wall Street Journal blog writes an intriguing post about the Google and Viacom lawsuit concerning Viacom’s claims of copyright infringement against YouTube (Google subsidiary).  The post recites how Viacom employees were uploading copyrighted copies of their own videos to YouTube to help prove that YouTube was not promptly removing videos that infringe copyrights.  At stake: immunity under the Digital Millennium Copyright Act.  Google says its protected from suit under the Act because YouTube removes content upon request of a copyright holder.  Viacom says otherwise and points to some of its own videos that were not removed.  I do not know the particulars of the lawsuit, but if Viacom hopes to prevail, you would expect that they have more to proceed on than there own employee videos.
  • PatentlyO, the nations leading patent law blog, has a humorous post indicating Starbucks may soon be subject to a false marketing claim if it keeps a patent number on its corrugated cardboard cups for much longer.  Professor Dennis Crouch looked up the patent  on the cup and its set to expire in a month.  Maybe Starbucks will settle out of court like the coffee house did with Kramer on Seinfeld for lifetime free coffee!  (if you are wondering, this happened in the Maestro episode)   
  • Brendon Tavelli of The Privacy Law Blog writes about the Federal Trade Commissions settlement against LifeLock,Inc. for misrepresentation concerning its identity theft services and protections.  35 states joined in the settlement.  According the the settlement, LifeLock was not providing the comprehensive identify theft coverage it advertised.  Any consumer considering identify theft should do a very detailed investigation of the company and its services.  I wrote a post recently about data loss and noted that many victims are offered identity theft protection as part of the settlement.  Many times, the protection is not adequate. 
  • Victoria Pynchon’s Settle It Now Blog has a compelling post about her project to teach women to negotiate better in retail, relationships, employment, and the law.  I recently discovered this popular blog and now I am a regular reader.  Great insights, not only for women (although she says so a few times).
  • John Buford of the North Carolina Business Litigation Report has a post about a business valuation case involving a closely held business.  At issue in the case was determining a value of an unproven technology.  The problem was setting a fair price to avoid a windfall for either side.  Although it is a North Carolina case, the concepts of valuing intellectual property, especially unproven technology, is more of a function of the science of appraisals than state law.  Some useful concepts are discussed including the appraiser’s methodology that the court accepted.
  • Mashable, a top 100 blog, discusses Twitter’s birthday only 4 years ago.  Twitter hit 50 million tweets per day last month. Mashable is a great blog that has just about everything there is to do with social media and web 2.0.
  • For more on social media: Nicole Black’s Sui Generis – a New York Law Blog – discusses Nicole’s new book, "Social Media for Lawyers: The Next Frontier."  The book is co-authored by Carolyn Elefant, who publishes the blog MyShingle.com an excellent resource for solos and small firm lawyers.  
  •  Megan Erickson’s Social Networking Blog also details the Classmates.com settlement.  I guess  I was not the only one getting those annoying emails claiming my classmates were looking for me. 
  • Cannot do a business blog round up without mentioning the ScotusBlog and its post on Anna Nicole Smith’s estate losing her long disputed claim for millions from her tycoon husband J. Howard Marshall.  The Post includes the decision and a summary story.  

 

Law Firm Lawsuit Highlights Need For Businesses To Take Caution With Website Content

 A recent decision by the United States Court of Appeals for the Ninth Circuit serves as reminder of the types of litigation that can arise from simply maintaining a website. Although the decision involved a dispute between two law firms, the facts could easily be related to competing businesses. 

The case involved Brayton Purcell, LLP, a California law firm that successfully sued another law firm for copyright infringement based on website content.   Brayton Purcell had copyright protection for its substantial website content on elder law.  According to the decision, a competitor law firm must have liked the content because the competitor copied the content verbatim for its own website.  This resulted in an undisclosed arbitration ruling in favor of Brayton Purcell.

Any business with a website should consider having a legal review done to determine if potential problems exist with the website’s content.  Facing a lawsuit over a website is one the problems I discussed in a recent lecture on 5 Technology Bombs That Can  Sink Your Business.

There are many ways that a website can lead to litigation.  Stanley Jaskiewicz authored an excellent article for E-Commerce Law & Strategy featured on Law.com related to "clearing" rights to publish content on websites.  He cited a simple example of how a business website can infringe a copyright by merely copying and pasting a photograph from one website to the business’ website.  In the process, the business might infringe the rights of the original photographer and the website owner.

A basic legal compliance review for a website can avoid this type of problem.  It starts with a risk assessment of the website and its content, including a review for potential claims involving: 

  • Copyright & Trademark infringement.  Copying from the the look and feel, content, and slogans from another website are some of the ways you can run afoul of copyright and trademark laws.
  • Defamation & Disparagement.  Posting content that is defamatory or disparaging of a competitor could result in litigation because the statements could be viewed by millions.
  • Unfair Trade Practices.  This type of claim is usually a tag along to some other actionable conduct.  This claim is often used to obtain an injunction or to recover greater damages and attorney’s fees.
  • False Advertising and Misrepresentation.  A website should be viewed no differently than traditional advertising.  False claims can bring lawsuits from consumers who make decisions based on website content.
  • Domain Name Disputes.  These disputes often occur when two companies want a similar domain name.  Depending on a variety of facts, one company may have greater rights to use the name regardless of who registers the name first.

Here are some tips to avoid a lawsuit concerning website content: 

  • Conduct a risk assessment.   This includes an audit and inventory of the website content.
  • Obtain "clearance" rights. If any of your content might violate copyright or trademark laws, you should seek to obtain clearance to use the material.  This involves the concept of searching out property right holders or authors and seeking permission or paying for use of the content.  
  • Avoid use of protected materials.  For example, do not copy another website verbatim as the law firm did in the California case.  This might seem like a no brainer but many people believe that anything posted on the Internet somehow loses its copyright and trademark protection. 
  • Protect your content.  In the California case, it was noted that the law firm had copyrighted its online content.     The law firm also monitored for any other website copying its content by use of Copyscape website.  Copyscape allows a user to input a website address or specific page to search the web for plagiarism. 
  • Cooperation or settlement.  Lawsuits involving property rights for website content usually begin with one website owner sending another a "cease and desist letter."  This is a demand that an owner take down infringing material.  One way to avoid a lawsuit is to simply agree and take down the material.  Alternatively, you might be able to reach an agreement for use of the material. 

The bottom line is that your business does not need the headache of a lawsuit over a website.  Taking caution from the beginning with website content can help eliminate the risk.

 

Do Not Count On Beating Goliath: Implement A Management Plan To Avoid Software Licensing Problems

This month’s business technology tip arises from the recent David v. Goliath story reported on by Douglas Malan of the Connecticut Law Tribune.  Kent Johnson, the owner of a small computer repair shop in Connecticut was sued by the software Goliath Microsoft for allegedly selling one improperly licensed version of Microsoft Office. Microsoft put 15 people on the case and sued Mr. Johnson in federal court for copyright infringement.  

Mr. Johnson represented himself against Microsoft and reportedly reached a favorable settlement.   Mr. Johnson has a website that provides all the details of the case form the very beginning.   As much as Mr. Johnson’s apparent success against Microsoft was unusual, the notion of Microsoft going after business owners for copyright infringement is not. 

Microsoft, and other software publishers, might pursue an infringement case directly or through enforcement groups such as the Business Software Alliance (BSA) and the Software & Information Industry Association (SSIA).  These groups estimate that piracy costs software publishers seven billion dollars annually.

When you purchase software for your business, the software comes with a license that restricts your use of the software.  If you violate the restrictions in the license by copying or distribution, software publishers consider it piracy.  For example, typically you cannot install a software program for several users on multiple computers without purchasing additional licenses.  Also, you generally cannot install a program on a network server and let multiple users have access to it without the proper number of licenses.

Violation of a software license or copyright can implicate significant civil (and potential criminal penalties) in piracy cases.  Penalties can range up to $150,000 per offense for copyright infringement and there may be additional damages for lost profits. Many of these cases result in significant financial settlements in favor of the software publisher. 

You might be wondering how Microsoft finds out about a small company violating its software license.   Typically, an anonymous informant (an employee or IT consultant) reports the company to the software publisher, BSA, or SSIA in hopes of recovering a reward.  These groups openly advertise rewards of up to a million dollars for anonymous tips that lead to successful enforcement  actions. 

Many times businesses can inadvertently run afoul of licensing restrictions without realizing it.  Violations can occur when trying to cut costs, relying on bad advice from IT professionals,  or an employee’s improper downloading of software.  When groups like the BSA become aware of allegations of software piracy, they usually issue a software audit letter to the business or initiate a lawsuit in federal court.  The BSA will request proof of proper licensing from the business.

After receiving an audit letter a business will have to decide to either fight it in court or cooperate.  Facing Microsoft or the BSA in court can be risky financially and many businesses chose to cooperate.  Problems often arise for businesses that cooperate because they cannot establish sufficient proof of licensing or the business is not aware of the extent of the infringement. 

The best way to prevent problems with software licensing or an audit is to implement a software asset management plan.  Ideally, the plan would include at a minimum a written policy covering: (a) terms for copying, use,and transfer of company software; (b)  the risks or improper use of software and piracy; and (c) disciplinary action for employee misuse.  The plan should also include software management including a system for record keeping of all receipts, licenses, and original copies of the software.  The plan should further include regular self-audits of company computer systems to verify proper licensing.

With a good software management plan in place, a business will be better equipped to defend a software audit or avoid it in the first place.  In either case, if your business is facing an audit or other enforcement action, you should seek legal advice.  If you face Goliath alone, do not count on obtaining the same success as Mr. Johnson.