COPYRIGHTS / PREEMPTION
"Hot News" Cannot Be Enjoined Under Misappropriation Claim
by Paul Devinsky
In a case that attracted significant amici attention, the U.S. Court of Appeals for the Second Circuit, invoking the copyright law principal of preemption, vacated an injunction against an internet news service that was based on a tort claim of misappropriation. Barclays Capital, et al. v. TheFlyOnTheWall.com, Case No. 10-1372 (2d Cir. June 20, 2011) (Sack, J.) (Raggi, J., concurring).
The FlyOnTheWall.com (Fly) operates a subscription-based electronic news service that compiles security firms' stock recommendations. Fly tries to obtain and release recommendations as soon as they are released by the security firms to clients. The plaintiffs (a group of security brokerage firms) sued Fly, alleging that Fly's republication of their recommendations violated copyright law and was also a misappropriation under New York tort law.
A district court entered a judgment for the plaintiffs, concluding Fly had infringed the plaintiffs' copyrights in their research reports, as well as that by collecting and disseminating to its own subscribers the recommendations contained in the plaintiffs' reports, Fly committed "hot news" misappropriation under New York tort law. The district court ordered Fly to pay statutory damages, prejudgment interest and attorneys' fees. It also permanently enjoined Fly from "further infringement of any portion of the copyrighted elements of any research reports generated by" the plaintiffs and from "dissemination of the [plaintiff's] recommendations until one half hour after the opening of the New York Stock Exchange or 10:00 a.m., whichever is later." Fly appealed.
Under 2d Circuit precedent, e.g., NBA v. Motorola (1997), a plaintiff bringing a "hot news" state tort claim has to demonstrate the following in order to survive federal copyright law preemption and succeed on the merits: the plaintiff was generating or gathering information at a cost; the information was time-sensitive; the defendant's use of the information was free-riding on the plaintiff's efforts; the defendant was in direct competition with a product or service offered by the plaintiff; and the ability of the defendant to continue free-riding would "so reduce the incentive to produce the product or service that its existence or quality would be substantially threatened." Applying this five-part test, the district court ruled in favor of plaintiffs.
The 2d Circuit lifted the injunction, holding that the plaintiffs "hot news" claim was preempted by federal copyright law. The court explained that although NBA was still good law, the five-part test was more descriptive than binding. Rather, the court concluded that "applying NBA and copyright preemption principles to the facts of this case, the [plaintiffs'] claim for hot news misappropriation fails." The court reasoned that Barclays' reports fell within the subject matter and scope of the Copyright Act and that Fly was not "free-riding" because it was essentially reporting the underlying news that plaintiffs had made various recommendations about particular investments. "The [plaintiffs] are making the news; Fly is breaking it," the 2d Circuit explained: "[a] Firm's ability to make news – by issuing a recommendation that is likely to affect the market price of a security – does not give rise to a right for it to control who breaks that news and how." Rather, the 2d Circuit explained that the so-called NBA preemption exception was narrow and that the focus is and must remain on the importance of maintaining the uniform nationwide scheme that the Copyright Act.
COPYRIGHTS / UNPROTECTABLE IDEAS / PREEMPTION
Really, "You Don't Mess with the Zohan"
by Clifford R. Lamar II (Dale)
In a case involving scènes à faire and preemption issues, the U.S. Court of Appeals for the Second Circuit affirmed a district court's grant of summary judgment in favor of the makers of the motion picture You Don't Mess with the Zohan. Cabell v. Sony Pictures Entm't, Inc. et al., Case No. 10 -2690 (2d Cir. June 24, 2011) (per curiam).
Robert Cabell, a comic book artist, filed suit in 2009 against actor Adam Sandler, Sony Pictures Entertainment and others for alleged federal copyright infringement and state unfair competition claims. Cabell claimed that the defendants' film You Don't Mess with the Zohan infringed his comic books, based upon alleged similarities between the main characters in the plaintiff's comics and the defendants' film. Cabell's comic book character is Jayms Blonde, an openly gay ex-U.S. Navy SEAL turned hairdresser by day and crime-fighting secret agent by night. In several book cover renditions, the Jayms Blonde character is in a fighting pose and wielding a "mini-Uzi blow dryer" weapon. Defendants' Zohan character is a heterosexual ex-Israeli Mossad agent (played by Adam Sandler) with a dream of being a hairdresser. In several marketing posters for Defendants' movie, Adam Sandler (as the character Zohan) was shown in various poses holding an actual blow dryer with the heating element clearly shown, but in a manner as if it were a gun.
In 2010, the district court granted the defendants' motion for summary judgment on all claims and dismissed the action. The district court first separated the protectable expression material (namely the actual poses and positioning taken by the characters, the likeness of the characters and the backgrounds of the materials) from the non-protectable material (namely the ideas of wielding a blow dryer as a weapon and fighting poses, as well as the scenes a faire of the secret agent and crime-fighting genres). Since the protectable expression of the plaintiff's Jayms Blonde comic character was different from the defendants' movie character in almost every respect—different poses, hair, clothing, wardrobes and image backgrounds—the court ruled that the defendants had not infringed Cabell's copyrights.
The district court also ruled that the plaintiff's state law claim had been preempted by federal copyright law. Aside from the fact that the New York statute asserted by Cabell had been repealed more than a decade ago, the court applied the preemption test and found that both the "subject matter" and "general scope" prongs were satisfied because the claim was nothing more than a reiteration of the copyright claim without any qualitatively different element introduced by the state statute.
On appeal, the 2d Circuit explained that it was affirming the judgment "for substantially the reasons stated by the district court in its thorough and well-reasoned opinion. Aside from the unprotectable ideas of (1) brandishing a blow dryer as a weapon, and (2) the characters' fighting poses, there is no plausible basis for a reasonable jury to find that the parties' respective expressions of the concept of a crime-fighting hairdresser are substantially similar." The court likewise affirmed the district court's preemption ruling.
COPYRIGHTS / ATTORNEYS' FEES
Strict Proportionality Not Required Between Attorneys' Fees and Damages
by Matthew McCloskey and Blake Wong
In a recent action for copyright infringement, the U.S. Court of Appeals for the First Circuit upheld the district court's award of attorneys' fees, noting that strict proportionality between fees and damages is not required. Spooner v. EEN, Inc., Case No. 10-2393 (1st Cir., July 5, 2011) (Selya, J.).
Jason Spooner, a musician, filed suit against defendants EEN and Dan Egan for copyright infringement arising from unauthorized use of Spooner's musical compositions in TV and internet advertisements for Sugarloaf/USA ski resort. The district court found that the defendants had willfully infringed, imposed a permanent injunction against them and awarded Spooner statutory damages of $40,000, as well as attorneys' fees of almost $100,000. The defendants appealed, claiming that the district court should have denied all attorneys' fees because Spooner's request for more than $175,000 in attorneys' fees was outrageously high.
As a preliminary matter, the First Circuit recognized a jurisdictional "obstacle" arising from the fact that the defendants' appealed the fee award without the district court having decided whether to award other costs. The court explained that as a general rule, a post-verdict fee award is treated as distinct from an award of costs. However due to the language of the Copyright Act, copyright cases differ because attorney's fees are a part of the overall costs, and not a separate inquiry. Since the district court had yet to decide whether to award overall costs, at the time of filing the appeal, the narrower question of whether to award fees was not, an appealable issue. Noting that a court is duty-bound to notice and act upon defects in its subject-matter jurisdiction sua sponte and that jurisdictional defects can sometime be remedied by corrective measures even after an appeal is filed, the court stayed the proceedings so that the parties could address the issue. The parties corrected this jurisdictional defect by stipulating to the value of the other recoverable costs with the lower court, which entered an appropriate order, certifying the result to the 1st Circuit.
In its main analysis, the court affirmed the district court's award of fees to Spooner, based on lodestar method analysis in which reduced billed hours are multiplied by approved rates. The court noted "[t]he law ... does not demand strict proportionality between fees and damages." Such a rule, the court explained, would run contrary to the purpose of awarding attorneys' fees, which is to "afford private parties the opportunity to vindicate rights that serve some broad public good." The court recognized, though, that some fee requests may be so "gluttonously high" that courts should award no fees at all. The court cautioned that such an action, however, is "powerful medicine" and should be used in only the "most egregious cases," such as when the fee request is outrageously inflated or when the attorney has logged unnecessary hours.
In this case, the record showed that the plaintiff had "pared" down his fee request before filing it. The plaintiff had written off many hours before submitting the fee request, and the defendants did not show that the number of hours the attorney billed or the hourly rate charged were unreasonable.
COPYRIGHTS / CHARACTER RIGHTS / PUBLIC DOMAIN
Scarlett? Rhett? Frankly My Dear, I Don't Give a Damn
by Whitney D. Brown
The U.S. Court of Appeals for Eighth Circuit ruled that copyright holders deserve protection of characters even after images containing such characters have entered the public domain. The 8th Circuit thus affirmed a district court's permanent injunction barring movie image licensors from selling altered versions of public domain images from Gone with the Wind, The Wizard of Oz and Tom and Jerry. Warner Bros. Entertainment Inc. et al. v. X One X Productions et al., Case No. 10-1743 (8th Cir., July 5, 2011) (Gruender, J.).
The plaintiffs own registered copyrights to the 1939 Metro-Goldwyn Mayer (MGM) films The Wizard of Oz and Gone with the Wind. Prior to completion of the films, publicity materials featuring images of the actors in costume and on the movie set were distributed to movie theaters and published in newspapers and magazines to promote the films. The publicity materials included "lobby cards," movie posters, still photographs and press books. The publicity materials did not comply with the copyright notice requirements under the 1909 Copyright Act and thus fell into the public domain. The plaintiffs also own copyrights for various animated films featuring the characters Tom and Jerry that appeared between 1940 and 1957. As with The Wizard of Oz and Gone with the Wind, promotional materials for these films were distributed without copyright notice and thus did not receive copyright protection under the then-operative 1909 Copyright Act.
The defendants acquired restored versions of promotional materials, including movie posters and lobby cards featuring characters from The Wizard of Oz, Gone with the Wind and several Tom and Jerry cartoon films. Characters including Scarlett O' Hara, Rhett Butler, Tin Man, Cowardly Lion, Dorothy, Tom and Jerry were used by the defendants on items such as t-shirts, figurines, playing cards and lunch boxes. In many cases, the defendants modified the images of the characters. For example, one of the defendants' products contained a character's publicity photograph with the addition of the character's signature phrase from the movie. The defendants also combined images extracted from different items of publicity material, such as publicity photographs of multiple characters, onto a single product.
The plaintiffs filed suit, alleging that the defendants had violated the plaintiffs' copyrights for the films by plastering images of characters from these films onto the items it then sold. The defendants argued that their use was permissible because prior distribution of the publicity materials without proper copyright notice, from which the images of characters were taken, had fallen into the public domain due to the failure to comply with the copyright notice requirements of the 1909 Copyright Act. The district court did not address the issue of whether the images had fallen into the public domain. Instead, the court granted the plaintiffs' motion for summary judgment on infringement on the grounds that even if the images were obtained from public domain materials, the defendants' practice of modifying the extracted images for placement on retail products infringed the plaintiffs' film copyrights. Accordingly, the district court granted a permanent injunction barring all use of images of characters from The Wizard of Oz, Gone with the Wind and Tom and Jerry films.
On appeal, the 8th Circuit explained that the district court had erred in failing to determine whether the materials at issue had entered the public domain. The court then turned to the issue of whether the defendants' use of images of characters from the copyrighted films in fact infringed the plaintiffs' copyrights. In finding infringement, the court concluded that the plaintiffs' copyright in The Wizard of Oz, Gone with the Wind and Tom and Jerry extended to the characters depicted in those films, noting that certain characters, such as Scarlett O' Hara and Rhett Butler, exhibit "consistent, widely identifiable traits in the films that are sufficiently distinctive to merit character protection under respective film copyrights." Commenting on the modifications made to some of the images by the defendants, the court noted that the "new arrangement of the extracts [from the public domain images] in the composite work is a new increment of expression that evokes the film character in way the individual items of public domain material did not," citing as an example the addition of the film line "there's no place like home" to an image of Dorothy taken from publicity material.
Notably, the 8th Circuit concluded that an exact image taken from publicity material that had fallen into the public domain and placed upon a t-shirt or other product did not constitute a violation of the plaintiffs' copyrights. The Court reversed summary judgment as to products that fit within this category, but affirmed the permanent injunction in all other respects.
Practice Note: Unauthorized use of images of film characters taken from materials that have entered the public domain can still incur copyright infringement liability, if such use evokes the film character as depicted in a film that has not yet entered the public domain.
COPYRIGHTS / LITIGATION
I'm Singing the Blues—Sampled Song and Procedural Mish-Mash
by Michelle C. Burke
In a case decided largely on procedural grounds (leave to file amended complaint, subject matter jurisdiction, attorneys' fees, res judicata), a once well-known blues and soul artist finally failed in his drawn-out attempt to obtain redress for the "looping" of his 1969 song by a 1990's hip-hop group, when the U.S. Court of Appeals for the Seventh Circuit upheld all of the district court's rulings against him in both of the cases he filed against the group. By taking too long to get his facts straight and to commit to a viable legal theory, Syl Johnson is now singing the blues again. Johnson v. Cypress Hill, Case Nos. 08-3810, 09-2213, 10-1733 (7th Cir., June 1, 2011) (Evans, J.).
In 1969, Twinight Records released a record of Johnson's song "Because I'm Black." Johnson also recorded a later version in 1972. In 1993, the hip-hop group Cypress Hill released an album, "Black Sunday," containing a track titled "Interlude," which consisted of 2.5 seconds of Johnson's song, looped for the entire 77-second track. In 2003 Johnson heard the track and sued Cypress Hill for infringement of the 1972 sound recording, asking for $29 million in damage.
Unfortunately for Johnson, it was revealed during discovery that his pleaded copyright registration did not cover the 1972 recording. This was particularly crucial to his claim because the Copyright Act does not protect sound recordings made before February 15, 1972, and the defendant used the 1969 recording for its album track. In 2008, after the defendant moved for summary judgment, the plaintiff tried to fix his case by asking for leave to amend his complaint to substitute claims for misappropriation under state law and for infringement of his copyright in the song composition (rather than its recording). The district court ruled that this amendment was too late and granted summary judgment to the defendant. The plaintiff tried again by asking the district court to vacate the summary judgment and enter an order dismissing the case for lack of subject-matter jurisdiction (since he never had a copyright in the sound recording that the defendant used). The district court also denied this motion, and then awarded attorneys' fees and costs to the defendant. Following dismissal of his first case, the plaintiff filed a second case asserting a state law misappropriation claim and a claim for infringement of the composition copyright. The district court dismissed the second case as barred by res judicata.
The plaintiff appealed both cases, arguing that the district court should not have denied his motion for leave to amend in the first case; the court lacked subject-matter jurisdiction over the first case and thus the entry of summary judgment was improper; attorneys' fees should not have been awarded in the first case; and the second case was not barred by res judicata. The court affirmed all of the appealed rulings of the district court in both cases. In doing so, the court labeled the request for amendment made on the eve of summary judgment as "exactly the sort of switcheroo we have counseled against." The court then found that the argument that the district court lacked subject-matter jurisdiction because the plaintiff did not hold a proper copyright registration when he sued was foreclosed by the Supreme Court's holding in Reed Elsevier. The award of attorneys' fees was affirmed on the basis that the plaintiff had "clear notice that [his] claim was frivolous and objectively unreasonable." Finally, the court found that because the district court did have subject-matter jurisdiction under Reed Elsevier and the facts underlying the legal theories in both of the cases were "unquestionably identical," the second case was barred by res judicata.
Practice Note: By failing to conduct a thorough examination of the facts and the applicable law prior to running into court, a plaintiff and his lawyers run the risk of turning what might have been a solid hit of a case into a mash-up of facts and theories that will never even make the charts.
TRADE SECRETS
Broad Injunctive Relief and Damage Award for Misappropriation of Trade Secrets Upheld
By Ulrika Mattsson
Considering a jury verdict holding that the defendants had misappropriated the plaintiff's trade secrets by using the plaintiff's source code to create competing audio conferencing products, the U.S. Court of Appeals for the Tenth Circuit affirmed the judgment for the plaintiff and scope of injunctive relief and the award of exemplary damages. ClearOne Communications, Inc., v. Bowers, et al., Case No. 09-4092, et al. (10th Cir., June 27, 2011) (Briscoe, J.)
ClearOne Communications filed sued against multiple defendants, including former employees, claiming, among other things, that the defendants had misappropriated its trade secrets by using the company's Honeybee source code to make their products. ClearOne alleged that former employees established their competing company using trade secrets obtained from ClearOne. A jury found that the defendants had willfully and maliciously misappropriated ClearOne's trade secrets and awarded ClearOne millions of dollars in damages. The district court later permanently enjoined defendants "from disclosing, using or transferring in any way the trade secret owned by ... [Plaintiff] ... called the Honeybee Code (including its unique algorithms or sub-algorithms that are not in the public domain), whether in the form of source code, object code, or any other form, and any code or product substantially derived from the Honeybee Code, as well as disclosing, using, or transferring in any way the product development documentation for the Honeybee Code or any other documentation that revels the contents of the Honeybee Code." Later, the district court found that the defendants, in connection with multiple related parties, had violated the terms of the permanent injunction. Accordingly, the district court expanded to scope of the permanent injunction to include the activities of the related parties. The defendants appealed.
In the ensuing appeal, the 10th Circuit ruled on 12 consolidated appeals. The defendants argued that the district court erred and abused its discretion in the scope of the injunctive relief awarded to ClearOne because the relief was not limited in "geographic, temporal, or prohibitive scope." The defendants also argued that the district court's post-verdict damage award, including an award of exemplary damages that was double the actual damages awarded by the jury, was impermissibly excessive.
The 10th Circuit affirmed the trial court's decision, holding that the lack of temporal restrictions on the permanent injunctive relief did not constitute an abuse of discretion and found that defendants' "post-trial contemptuous conduct" supported the injunction's unlimited duration since ClearOne "had established a cognizable danger that the [the defendants] would commit future violations." Further, the 10th Circuit observed that because ClearOne was likely to encounter problems collecting on the monetary judgments entered in its favor, the injunctive relief was likely the more meaningful remedy.
Finally, the court found that the district court did not abuse its discretion by awarding exemplary damages that were double the amount of actual damages imposed by the jury.
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