House hearing on 1201

Posted on September 18, 2014 by rtushnet
House Judiciary Hearing, Subcommittee on Courts, the Internet, and Intellectual Property: 1201
Bonus Library Copyright Alliance statement.
Rep. Marino: DMCA is important but there are concerns about misuses; fortunately courts have generally gotten it right to avoid anticompetitive behavior.  We want to hear more about ensuring 1201 is used to protect copyrighted works and not printer cartridges.  Copyright Office just announced the new rulemaking process. Congress recently enacted cellphone unlocking legislation: template?  1201 has a lot to do with digital distribution.
Rep. Nadler: DMCA was enacted to implement WIPO treaties.  Wants to hear how 1201 is working and what changes might be appropriate.  DMCA has been effective in allowing companies to promote new/innovative business models.  (I’d love to see the evidence of this.)  Promotes creation of new online services used to access movies etc. Often use TPMs to prevent unauthorized access: access controls. Also copy controls.  © owners depend on these as an effective way to respond to infringement and make works available online. Plays key role in reducing piracy.  Should study whether triennial rulemaking process is working correctly.  New procedures to enhance public understanding—allowing parties to provide basic information; short submission form to allow public to register their views.  While DMCA didn’t always work as intended, led to innovation and benefits for consumers. Helps creators have confidence to provide video over internet despite risks, and deters theft/unauthorized access.
Rep. Conyers: Keep in mind: we need to ensure that 1201 remains strong to prevent piracy and keep the US competitive globally. © is critical to job development and overall economy; foundation for our inventiveness and dynamic business culture, and US competitiveness. IP-intensive industries account for nearly 35% of nation’s GDP in 2010, and 40 million jobs directly or indirectly.  (I’ll just note that Coca-Cola is counted as IP-intensive in these measures because of its brand value.)  Piracy costs billions of dollars and millions of jobs.  Chinese piracy and counterfeiting cost American businesses approx. $40 billion in 2009. Over 2 million jobs could’ve been created in the US if China complied w/its current obligations.  (If this is so, the DMCA is completely irrelevant and even a distraction.)  We need to provide more resources to protect © domestically and abroad, fully funding federal enforcement, including deterrents to infringement and prosecutions of commercial infringers.  Encourage other countries to enact strong copyright laws and enforce them.  China again. 
Oppose efforts to weaken 1201 because it encourages the use of TPMs to protect copyright.  This strengthens © by cultivating innovative business models encouraging lawful innovation and discourages piracy.  Some ignore its effectiveness by wanting to weaken or eliminate it. Some contend that © owners use 1201 as a tool to stifle competition—laser printer/garage door opener.  Fortunately, courts ruled against those companies.  Others contend that the triennial rulemaking process is too narrow.  1201 maintains necessary balance between strong protection and consumer-friendly market.  (Um, that’s not a balance.)  There have been dozens of exemptions granted since 1998.  (Largely because you have to ask for your exemption every three years.)  We can make it more efficient.
Mark Richert, VP Public Policy, American Foundation for the Blind (link goes to written testimony): Helen Keller was a fierce advocate, not just inspirational.  Needless complexity in 1201 process. Bottom line: it’s time for the entire © regime to be looked at very carefully. Piecemeal process should be looked at more generally.  AFP worked to enact the Chafee Amendment, allowing people with disabilities to reproduce materials in accessible formats without needing permission. That language really helped codify the notion part of © for a long time: for certain purposes, particularly access to those with disabilities, certain uses are fair.  Limited to nondramatic literary works, but important first step.  That was narrow and incremental, and it needs to be revised for the internet.  Our experience with 1201: significant limitations.  © Office has recognized exemptions, but threatened to take them away too—nearly lost our ebook exemption.  What that shows is that, even though the rights haven’t changed, the process can fail people with disabilities.
Jonathan Zuck, president, ACT: the App Association: represent over 5000 app developers and IT businesses who create and license content.  Vibrant success story for apps.  68 billion over 6 years, employing over 750,000 Americans.  App industry didn’t exist in 1998.  Protecting content v. potential impediments to future innovations.  Courts have consistently rejected attempts to abuse DMCA to block competition or legit research, and we’ve added new exemptions for unlocking/accessiblity for the blind.  DMCA is having little if any adverse impact on innovation.  Consumers have endless options for consuming movies, music.  Technical and easy to misinterpret and misunderstand; we published a white paper “explaining” the DMCA.  Takeaway: explosive growth in tech innovation in content delivery prove the DMCA created an environment in which this is possible. Curated app store demonstrates how DRM/DMCA create a virtuous cycle for consumers and developers.  Invisible protection for developers; consumers can trust apps in store and benefit from ability to replace lost/corrupted apps with a few clicks.  Consumers don’t have to deal with viruses from noncurated app stores. TPMs are essential to success of industry. Yes, there’s app piracy, but just because in 16 years there’ve been a handful of bad cases doesn’t mean we should ignore innovation of last decade.  Over a million apps available in marketplace. Virtually no barriers to becoming an entrepreneur. There may be ways to improve DMCA, but proceed w/caution before dismantling compromises that worked.
Christian Genetski, senior VP/GC, Entertainment Software Association: Leading video game publishers and console manufacturers.  100s of millions of gamers worldwide; $21 billion to US economy.  TPMs spur innovation.  DMCA is fundamentally sound and largely working as intended.  Prevent piracy and promote broader dissemination of legit content: these incentives are working.  Platforms, publishers, and gamers have benefited.  Piracy remains a concern, but TPMs/DMCA played pivotal role in reducing their scope. Our industry understands that reducing piracy in the long run requires offering consumers a better experience. Does not reduce consumer choice.  TPMs help expand consumer choice by expanding across platforms and price points.  Explosion of free to play game offerings available on mobile phones; console has become robust online hub; enabled new digital gaming services across platforms and devices. Consumer-focused approach relies heavily on TPMs. Accepting that no tech is impervious, DMCA establishes baseline of respect for TPMs and deterrent.  Critical that any consideration to address outlier cases/unintended consequences shouldn’t undermine these benefits.  Circumvention for only noninfringing uses = embolded pirates. Not theoretical concern: recognized in last rulemaking when videogame circumvention exemption was rejected—very same steps required to hack for noninfringing uses were overwhelmingly used for piracy. No law is perfect. Where DMCA is perceived as restricting fair use, exemption process works.  We liked the exemption process a lot, though targeted efforts to improve it could be discussed.  Unrivaled innovation after DMCA.  Access to more varied/higher quality content with choice more than any other time in history.
Corynne McSherry, EFF: We regularly counsel security researchers, innovators, ordinary users, remix artists about DMCA issues.  Based on our experience we’ve seen the real price of 1201, which is too high. Was supposed to deter © infringement, but over and over we’ve seen it used to thwart not just legal but copyright-irrelevant activities.  Last year consumers discovered unlocking phones was illegal—Copyright Office has veto power over normal uses of their own devices. Congress temporarily restored unlocking; we’re grateful for that, but we should be disturbed it was necessary to do so in the first place.  A few practical examples: flaw in security protection on CDs that could potentially allow hacker to take over computers—500,000 networks including gov’t.  Researchers hesitated to share this knowledge because they’d already faced DMCA threats for past similar security work. Security is hugely important; we’re all at risk when leading researchers can’t do their jobs. DMCA also used to block competition, not just in 2 cases, but computer repair etc.  Legit competition moves into courtroom; used against hobbyists who want to make their stuff work better.  Inhibits a nation of tinkerers.  Phones, cars, fridges, farm equipment—software helps goods work. But repair/recycling may require circumvention; this is bad for the environment and consumers.  Also bad for the people it’s supposed to help: artists.  1201 stands in the way of fair use.  Exemption isn’t adequate—takes many hours of work, legal and tech expertise, and if you win you have to start all over again.  Copyright Office is dedicated, but small and overburdened and shouldn’t be the ones to make the decisions shaping the future of tech.  Individuals and companies engaging in infringement—“pirates”—aren’t deterred. They’re already on the hook for substantial infringement penalties. Best outcome: get rid of 1201.  Or limit it to the situations it was supposed to target: circumvention that aids infringement. This would get back to purpose and avoid the costs of the exemption rulemaking.
Rep. Chabot: App from his district, allow kids to play with food creating machine.  Created interactive gaming company—great success story.  Piracy threatens startups.  Pirates create copycat apps and sell them under different name.  How significant is this? Are DMCA or other remedies sufficient? What additional remedies would you like to see to protect developers and consumers?
Zuck: Piracy is an ongoing problem.  DMCA has gone a long way by allowing curated stores to have a much better record of finding and removing pirated and poorly intentioned software.  (I didn’t know that curated stores were mandated by the DMCA or would disappear without it; I’d sort of thought they served the economic interests of their curators.)  DMCA has altered the previous software landscape and allowed apps to survive.  Piracy/malware is a problem.  But DMCA is a big deal.
Chabot: could you describe how TPMs have allowed innovation?
Genetski: (1) as a matter of tech, backstopped by law, it’s been effective in not completely eliminating but diminishing piracy.  Historical difference in piracy rates between PC platform (no TPMs) and those on game consoles (use TPMs)—drastically different. PC package game market was severely undercut by piracy.  (2) TPMs have played a role in reinventing PC game market—moving to the cloud with server-based games that can authenticate legit users.  (3) TPMs incredibly useful in allowing publishers to compete with free.  By allowing users to do things like have 48 hour free trial period to evaluate whether they like it.  Start the game on their phone, then play more at tablet, then resume on TV screen at home. Users want this and TPMs are the backstop to making piracy not a consumer choice.
Rep. Goodlatte: Comprehensive review of © law.  DMCA came because of concern over mass piracy. TPMs were intended to allow self-help.  Either have been effective tool or have simply been a small speed bump for dedicated pirates. © owners have reevaluated need for TPMs: music industry has turned away from them.  Changes: Some want a scalpel and others with blunter suggestions.  Those of us involved with the drafting wouldn’t have anticipated some of the litigated issues; interested in ways to better focus 1201 on protecting copyright works from piracy rather than non-copyright industries from competition.
Rep. Conyers: Genetski mentions targeted efforts to approve efficacy/efficiency of rulemaking.  What kind of changes would you recommend?
Genetski: We all share frustration at need to return repeatedly and seek renewal where no one’s opposed an exemption.  Now we have several iterations where we’ve seen some patterns emerge. There are clearly areas emerging like Richert’s that may warrant thought about how to address. Contrast to video game console proceeding,where process worked well with voluminous record and argument from both sides.  Isolate instances where there’s room for targeted improvement.  (Excellent non-answer.)
Conyers for Zuck: do you think there are opportunities to improve the law?  Why do you want us to be wary of dismantling existing compromises?
Zuck: Agrees that there’s room for improvement in rulemaking and review particularly.  Make it more fluid, fewer impediments to legitimate exemptions.  (Which are?)  But the facts are with the law: as a whole, it’s worked. Facilitated the app industry—protects consumers from malware, need to replace software.  Instances along the way where law’s been tested doesn’t make it different from any other law.  If you got rid of every law with excesses you’d have very little law left. Deal with exceptions but remember it’s successful.  Use a scalpel.  (On what?)
Rep. Issa: We don’t have a librarian here—need that perspective.  If we leave the system in place, and Congress continues to be faced with decisions we don’t like (unlocking), where people bought something where the software was incidental to the hardware, is there flexibility to allow Congress’s view to be seen, or do we have to hope that there’s a large enough public outcry each time?
McSherry: that flexibility exists: Congress can set © policy, but it’s remarkably cumbersome to do it again for each innovation that comes up.  It’s not just occasional that these TPMs are litigated; EFF has an increasingly longer paper on unintended consequences. Rather than piecemeal backstop of Librarian of Congress: reform 1201 so that acts of circumvention creating liability have a relationship to infringement or facilitation of infringement.  Reform so that exemptions that are created apply to tools, not just acts of circumvention; big flaw in current process.
Issa: Congress is cumbersome compared to court review—do we need further administrative review that has more bias toward the intent of the DMCA?  Blind people often find themselves w/o accommodation, need circumvention.  Review under Copyright Office, or real reforms with administrative bias towards fair access?
Genetski: design of the statute with balance of prohibitions and exemptions for security testing/interoperability is fine.
Issa: this three-year review with Congress as a backstop doesn’t have any other recourse but Congress.
Zuck: largely worked, worth exploring a process to see if there’s a more fluid process in the absence of objections.  Tech people are sympathetic to innovation, but change is possible if done in targeted way.
Richert: True, visually impaired/blind people have only one recourse right now. There is another way: if rightsowners assure accessiblity of the stuff they make available.  We went to the © Office because folks who were blind or visually impaired were trying to read ebooks they’d paid for, and they wouldn’t get anything at all/they’d get a message that accessibility had been disabled at the request of the © owner.  We wouldn’t have initiated our efforts 12 years ago if the underlying works were made accessible.  Thus we suggest an overall approach to © reform, because ensuring a limited monopoly to promote progress surely means at a minimum that all people, including people w/disabilities, can use what everyone else can use.  If the underlying work isn’t optimized for the tech that assists people with disability, we should be able to make it accessibility. Presumption that these materials should be made accessible.
Issa: there are none so blind as those who will not see the needs of their customers.
Rep. Chu: Submits written statement from Copyright Alliance about the ways artists use TPMs to protect their work.  TPMs impact piracy rates in video games, comparing platforms: PC v. console.  How does the rate of piracy differ?  How does the industry combat infringing use?
Genetski: rates historically/currently: 80-85% higher for PC game titles, in many cases the same game titles.  Infringing download sites—29/30 most popular titles are PC titles. More compelling part of the story is the response to that reality: find a way to reinvent that market, recognizing the issue and using TPMs in a way that grows the market (online play).  Often free play, paying only for what they want. Need rulesets to admit only those who will play by the rules, not cheats and hacks to disrupt the experience for the majority.  TPMs play critical role in nurturing that.
Rep. Chu: Innovative game delivery mechanism—what role do TPMs play in determining whether content owners decide to make content available through new mechanisms, and what role does triennial review play?
Genetski: Steam, an online digital gaming service.  Origin is another platform: allows purchase of digital content.  EA has GameTime: 48 hour window to try a game.  Lawful means to sample.  These require TPMs for when the 48 hours ends. Steam is pro-consumer, nonrestrictive service. TPMs are the backbone to account-based services.  Few restrictions once you’ve purchased the product, but the architecture behind the scenes is important.
Rep. Chu: what are our treaty obligations?
Genetski: WIPO treaty was a motivating factor: requires effective/adequate remedies against circumvention. FTAs with Korea, Australia, etc. that are more specific to the current 1201 provisions. Repeal/rollback of current prohibitions to where adequacy/effectiveness would be called into question would be a problem.
Rep. Farenthold: EFF member.  Where could this go?  Traditionally patent law protects things and copyright law protects works.  Now more and more things have software, which you license when you purchase.  Can we distinguish software as an integral part of a thing v. an app, so you can do what you want with a thing you buy?  If I buy a car, can the car company prevent me from selling it on the used market by using software to turn the car off on transfer?
McSherry: this is one of our biggest concerns. Lots of unexpected uses.  Problem will only get worse.  Your hypo is not hypothetical: people have always tinkered with our cars but cars now have a lot of software.  Can be used to lock folks down to one repair option—all too common.  If you buy an object but only license the software, you may not know about all the restrictions. 
Rep. Farenthold: moving through courts is slow and expensive. How do we streamline the process for fair use, reverse engineering, etc.?
Zuck: while the judicial process is slow, it’s inevitable at the beginning of the life of a law. Most of the examples are old; people are now less fearful about the implications of hacking.  Hacking/modification is alive and well now.  Don’t think about it as the rule rather than exception. There are opportunities to streamline but it’s a mistake to look at experience as a whole and see DMCA as problematic; the numbers don’t support that.
Rep. Deutch: specifically, what changes would you want?
Zuck: the renewal process of an exemption could be modified and streamlined, especially when there are no objections, which is very often the case.  (Excuse me?)  The cumbersome nature of the process has been the exception and not the rule because most of the TPMs in place are seamless.
Deutch: we all agree the Office made the wrong call on cellphones.  But what next?  Only with intent?
McSherry: circumvention or tools designed to facilitate infringement.
Deutsch: but you can infringe without intent to infringe.
McSherry: only when there’s an actual tie to copyright infringement.  The way to deal with that: if someone is designing a tool in good faith, and someone happens to use it to infringe that shouldn’t be their fault.
Deutsch: Genetski says TPMs have helped innovation.  What’s your objection?
McSherry: when we look at 1201, it’s cost/benefit.  We don’t think its benefits justify its costs. 
Deutsch: you say pirates are going to be pirates.  But address the benefits Genetski laid out.
McSherry: we’re conflating TPMs and 1201.  They’ve argued for the benefits of TPMs.  It may be that they’ve been helpful.  I don’t think 1201 as a backstop to the TPMs.  Whether there’s an overall benefit to TPMs is different. 1201 has inhibited things like security research.  (It’s not just that pirates will be pirates.  It’s that 1201 doesn’t make what they’re doing any more unlawful; it’s already unlawful.  So they’ve already decided that they’re going to infringe.  And their cracking of TPMs will also contribute to infringement and they’d be liable for secondary infringement even without 1201.  Given that, 1201 interferes with people who’d like to comply with the law, not with people who’ve already decided to ignore it.)
Genetski: TPMs are a sound business choice.  Delivering consumers content in the way they want. But it establishes normative behavior. People understand it’s unlawful to hack. Where tech fails, and it always does, having a law as a backstop helps the majority of users understand the bargain.  (What’s the evidence that the majority of users know what the DMCA is?)
Zuck: backstop is important.  Open source software has bugs/security holes too.  There’s no comparison between benefits and costs.
Genetski: reduce amount of scope on consoles.  Last rulemaking: EFF proposed circumvention for game consoles for noninfringing uses.  However, we showed that the community of users that would use the tools to circumvent basically broke the lock. Once the lock is broken there’s no fixing it, and it allows playback of pirated content. May also allow a sliver of noninfringing use?
Rep. Holding: how much money are you losing?
Genetski: difficult to quantify, but we do 100s of thousands of takedowns monthly, so it’s a significant problem.
Rep. Jeffries: Richert: your resources are being expended to vindicate a civil right that’s already been established. You support reform for noncontroversial exemptions?
Richert: Short answer: yes—we want a comprehensive approach to © to accessibility. Specifically to 1201: we recommend specific reforms. 
Jeffries: how do you define a noncontroversial exemption? Seems easier said than done, especially around this place—the Export/Import bank was noncontroversial until it became controversial.  Would it be based on lack of objections?  Would it be based on repeated reauthorization?  Some combination?
Richert: Noncontroversial is not the best definition. People often think of accessibility as like motherhood and apple pie, until it’s time to actually regulate.  When someone can make a case that the use is clearly fair and traditionally, consistently recognized as such, that’s a no-brainer.
Jeffries: current framework has allowed for innovation, but what to do?
Genetski: right focus would be lack of opposition.  Perhaps not de novo review, but burden to stay the same in the absence of opposition.  (As I recall, the Joint Owners technically opposed all the exemptions, but didn’t deign to argue about the blind. Would that count?)
McSherry: we sought an exemption that would allow you to turn your console into a general purpose computer. There used to be consoles that could be modified to run Linux—useful for research because less expensive. Console design changed to prevent that. Could be easily circumvented for lawful purposes, so we sought an exemption.  Related ask for circumvention for “homebrew” games—games they developed themselves.
Rep. Smith: Any downsides to that exemption?
Genetski: record established that running Linux on a console was incredibly uncommon until there was a publicly released hack that allowed circumvention—the feature also prevented running pirated content.  After it was removed, that console manufacturer granted authorization to use that part of the system to bona fide security researchers who asked. There was very little harm.  Grave harm for opening up that door.  (I thought consumers understood the DMCA and understood lawful/unlawful.)
McSherry: be clear: that hack was widely available.  Only legitimate users were inhibited. This is the difference between TPMs and 1201.
Rep. Collins: most of EFF’s cases are old.  You eventually set precedents to fix them.  Why not remove robbery from the books?  Console developers granted permission to security researchers.  People need a profit motive to make stuff.
McSherry: Independent repair people don’t know if they can stay in business. Cars have TPMs in them.  And that’s just cars.
Collins: problems are opportunities.  Marketplace provides medicine for this problem.  (Because producers routinely encourage competition?)
Rep. Marino: we know there’s a lot of piracy, trade secret theft, trademark infringement internationally. From an international perspective, what impact does 1201 have?
Genetski: DMCA grew out of WIPO internet treaties; US has been a leader in exporting protection against circumvention.  FTAs: laws that track 1201. That has important practical impact.  Was involved in actions around the world on behalf of game publishers. We pursued cases under the local version of 1201.  The ability to have these remedies exported and used to create worldwide norms is critical.
Zuck: Prices have fallen dramatically in our industry.  Some of the incentives for piracy have decreased, while some of the consumer benefits from TPMs have increased.  Protection from malware in a curated store means that you have a better chance of exporting those protections, so rather than jailbreaking my phone I’m using cheap/free apps.  Decrease incentives for pirates and for consumers to make use of pirated goods.
McSherry: skeptical about exporting 1201, given that we already have copyright penalties.  The evidence does not show deterrence of piracy.  Given the concerns that many of us agree on, it’s wrong to export 1201 wholesale.  Even if we shouldn’t scuttle it, there are significant flaws.

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7th Circuit doesn’t like transformativeness or factor 1, still finds fair use

Posted on September 16, 2014 by rtushnet
Kienitz v. Sconnie Nation LLC, No. 13-3004 (7thCir. Sept. 15, 2014)
Just the facts:
While a student at the University of Wisconsin in 1969, Paul Soglin attended the first Mifflin Street Block Party, whose theme (according to Soglin) was “taking a sharp stick and poking it in the eye of authority.” Now in his seventh term as Mayor of Madison, Wisconsin, Soglin does not appreciate being on the pointy end. He wants to shut down the annual event. For the 2012 Block Party, Sconnie Nation made some tshirts and tank tops displaying an image of Soglin’s face and the phrase “Sorry for Partying.” The 54 sales, on which Sconnie Nation cleared a small profit, led to this suit, in which photographer Michael Kienitz accuses Sconnie Nation and its vendor of copyright infringement. Sconnie Nation concedes starting with a photograph that Kienitz took at Soglin’s inauguration in 2011. Soglin (with Kienitz’s permission) had posted it on the City’s website, from which Sconnie Nation downloaded a copy. The photograph was posterized, the background was removed, and Soglin’s face was turned lime green and surrounded by multicolored writing. Here are the original and the revision: A magistrate judge, serving by consent under 28 U.S.C. §636(c), granted summary judgment for the defendants, holding that Sconnie Nation had made fair use of the photo.
Kienitz’s photo and T-shirt graphic
The court of appeals affirmed, albeit narrowly.  It began with factor one, commenting that transformativeness doesn’t appear in the statute, though the Supreme Court “mentioned” it in Campbell.  (“Mentioned” is sort of like saying WMDs were “among” the reasons the US offered for war in Iraq.  But ok, set the tone.)  The court then expressed “skeptic[ism]” about the approach of Prince v. Cariou, “because asking exclusively whether something is ‘transformative’ not only replaces the list in §107 but also could override 17 U.S.C. §106(2), which protects derivative works.”  Instead, it’s better to stick with the statutory list, “of which the most important usually is the fourth (market effect).”  (Richard Primus refers to this kind of interpretive re-prioritizing of Supreme Court decisions by courts of appeals as “underruling.”)
I think it’s important to pause for a moment here, because we’re all used to the clever and extremely readable rhetoric of 7thCircuit opinions, but let’s not rush too fast past what this opinion is doing.  Having not quoted either the Supreme Court or the Second Circuit’s definition of transformativeness (which might allow one to assess whether there is too great an overlap with the derivative works right, or for that matter with the reproduction right since that’s what the majority of Second Circuit transformativeness findings deal with), the Seventh Circuit tells us to stick to the statute.  But it doesn’t tell us what the first factor does attempt to privilege and deprivilege. Instead, the court goes to its own economic lingo-driven test: “whether the contested use is a complement to the protected work (allowed) rather than a substitute for it (prohibited).”  Where this appears in the statute is left as an exercise for the reader, though by placement in the opinion we might possibly infer that it is the appropriate rephrasing of factor one, as opposed to inappropriate transformativeness (though the court later says that factor one isn’t relevant at all).  However, complement/substitute requires some baseline for understanding the appropriate scope of the copyright right—the markets to which copyright owners are entitled—just like transformativeness does.
Anyhow, t-shirts and tank tops don’t substitute for the original photographs.  (Do they serve as complements?  Judging by the analysis below, no.)  Kienitz didn’t argue that his plans for licensing the work for apparel were disrupted by defendants’ use or that demand for the original or any other use he contemplated was reduced.  
Other than market harm, only the amount taken mattered here:
Defendants removed so much of the original that, as with the Cheshire Cat, only the smile remains. Defendants started with a low resolution version posted on the City’s website, so much of the original’s detail never had a chance to reach the copy; the original’s background is gone; its colors and shading are gone; the expression in Soglin’s eyes can no longer be read; after the posterization (and reproduction by silkscreening), the effect of the lighting in the original is almost extinguished. What is left, besides a hint of Soglin’s smile, is the outline of his face, which can’t be copyrighted. Defendants could have achieved the same effect by starting with a snapshot taken on the street.
Factor one didn’t do much: the use was for-profit, but the choice of design was a “form of political commentary.” The nature of the work was likewise “unilluminating,” and then the court repeats its market harm conclusion, apparently now as a matter of the nature of the work: “Kienitz does not argue that defendants’ acts have reduced the value of this photograph, which he licensed to Soglin at no royalty and which is posted on a public website for viewing and downloading without cost.”
Kienitz had two points on his side:
First, defendants did not need to use the copyrighted work. They wanted to mock the Mayor, not to comment on Kienitz’s skills as a photographer or his artistry in producing this particular photograph. There’s no good reason why defendants should be allowed to appropriate someone else’s copyrighted efforts as the starting point in their lampoon, when so many noncopyrighted alternatives (including snapshots they could have taken themselves) were available.
Except: If the factor (3) analysis is correct, how is there any appropriation of the copyrighted work? Feistsays second-comers aren’t required to duplicate fact-gathering efforts, as a matter of constitutional law.  But never mind!  Fair use isn’t designed to protect the lazy, the court says.  Instead, it’s to facilitate uses that wouldn’t be possible if negotiation with copyright owners were always required, like parodies or academic uses.
Another point in Kienitz’s favor is that “this use may injure Kienitz’s longrange commercial opportunities, even though it does not reduce the value he derives from this particular picture. He promises his subjects that the photos will be licensed only for dignified uses. Fewer people will hire or cooperate with Kienitz if they think that the high quality of his work will make the photos more effective when used against them!”  (Judicial factfinding at its finest.  Even on its own terms this doesn’t make any sense, since the factor (3) analysis hangs on the extreme distortion of the crappy low-res version on the website, which could happen to any photo.)
But Kienitz didn’t make this argument that the Seventh Circuit just made up for him, and anyway that’s not enough to outweigh the fact that, “by the time defendants were done, almost none of the copyrighted work remained.” (Or, you know, the Campbell rule of law that demand suppression of this sort isn’t actionable, but that rule is both normative rather than efficiency-based and also comes from the Supreme Court and not the Seventh Circuit, so I guess it can safely be ignored.)  Affirmed.

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Transformation by subtraction redux?

Posted on September 15, 2014 by rtushnet

First there was Garfield without Garfield.  Now there’s 3eanuts, turning Peanuts strips into raw expressions of angst and meaninglessness by subtracting the last, (partially) redemptive panel. HT Zach Schrag.

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Don’t mess with Texas whiskey?

Posted on September 15, 2014 by rtushnet

Interesting article about a bourbon whiskey plastered with Texan signifiers, but apparently bottled (rather than distilled) in Texas.  The article makes several interesting advertising law-related claims: (1) sophisticated readers who examined the label in detail would be able to divine that the product was not distilled in Texas because of the absence of the key word “distilled,” (2) this is nonetheless confusing because of the ordinary meaning of “made in Texas” to those not familiar with alcohol labeling regulations and the rest of the signifiers on the bottle, and (3) anti-government-regulation types nonetheless have an interest in prohibitions on fraud, so how should they think about this?

1835 label, “come and take it!” Texas Made

HT James Milles.

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google it: verb status doesn’t mean Google is generic

Posted on September 15, 2014 by rtushnet
Elliot v. Google Inc., No. CV–12–1072, 2014 WL 4447764 (D. Ariz. Sept. 10, 2014)
Based on the evidence submitted here, Google seems to have thought long and hard about genericity, and prepared consumer surveys accordingly.  FWIW, my opinion has long been that generic and brand understandings can coexist in the same person; many people who ask for “a kleenex” are also aware that there is a particular brand of tissue called Kleenex.  And it’s much more so when the name is used as a different part of speech.  “To google” is an activity; Google is an entity.
The Google marks at issue covered “computer hardware; computer software for creating indexes of information, indexes of web sites and indexes of other information resources” (the 502 mark) and a mark with a longer description for pretty much the same thing except this time starting with “Computer services” (the 075 mark).  Elliot registered 763 domain names that combined “google” with a brand, person, or term (e.g., googlebarackobama.net), and Google promptly filed a UDRP proceeding.  The UDRP naturally ordered the transfer of the domain names.  Elliot then sued for cancellation of the marks.  Google’s counterclaims were the Lanham Act/state ones you’d expect. This opinion deals with summary judgment on genericity.
The court’s summary of Elliot’s argument:
Plaintiffs contend the GOOGLE mark has become generic because a majority of the public understands the word google, when used as a verb, to mean the indiscriminate act of searching on the internet without regard to the search engine used. Underlying Plaintiffs’ argument is the proposition that verbs, as a matter of law, are incapable of distinguishing one service from another, and can only refer to a category of services.
Google responded that there was no evidence that could justify a finding that a significant portion, let alone a majority, of the consuming public failed to identify Google as an indicator of source, regardless of how the term was employed grammatically.
The relevant question was the primary significance of the mark to the consuming public, in connection with the goods or services at issue. A trademark doesn’t cease to function when it’s used primarily as a verb; “a trademark performs its statutory function so long as it distinguishes a product or service from those of others and indicates the product’s or service’s source.”  If someone verbifies a brand name, if they mean that the activity will be performed with the trademark owner’s product or service, then they’re still using the mark as source-denoting: “e.g., ‘I will PHOTOSHOP the image’ could mean the act of manipulating an image by using the trademarked Photoshop graphics editing software developed and sold by Adobe Systems.”  (Incidentally, this suggests that an example of possible genericide long used in the Ginsburg et al. trademark casebook isn’t as existentially threatening as all that; see also the Xerox ad below futilely begging people not to use Xerox as a verb.)
Is LapLink giving Xerox and FedEx anything to worry about?

Take two trademarks and call me in the morning.

Verbification, however, isn’t inherently brand-protective: “[A] mark can also be used as a verb in an indiscriminate sense so as to refer to a category of activity in general, e.g., ‘I will PHOTOSHOP the image’ could be understood to mean image manipulation by using graphics editing software other than Adobe Photoshop.”  That usage doesn’t perform a trademark function.  “[I]nstead, it functions as a synecdoche describing both a particular species of activity (e.g. using Adobe’s PHOTOSHOP brand software) and the genus of services to which the species belongs (e.g. using image manipulation software in general).” 
Comment: I would disagree. As long as the user is aware that it’s a synecdoche, the distinction between mark and non-mark service remains, just as people are well aware that ranch workers are more than disembodied “hands.”  “Aspirin,” by contrast, is not a synecdoche; it’s the name of a product.  And the court immediately walks that back: “It cannot be understated that a mark is not rendered generic merely because the mark serves a synecdochian ‘dual function’ of identifying a particular species of service while at the same time indicating the genus of services to which the species belongs.”  Rather, the generic sense must be the term’s “principal” significance before genericity exists.  Moreover, per McCarthy, casual conversational uses aren’t evidence of generic use; primary significance is determined by use and understanding in the context of purchasing decisions. (Somewhat awkward for Google’s free service, then; someone who says “google it!” is in fact suggesting the equivalent of a purchase.)
Trademark law rewards effort in building a brand.  “It is thus contrary to both the letter and spirit of trademark law to strip a mark of legal protection solely because the mark—cultivated by diligent marketing, enforcement, and quality control—has become so strong and widespread that the public adopts the mark to describe that act of using the class of products or services to which the mark belongs.” The court cited Laura Heymann: “top-of-mind use of a trademark in its verb form, far from indicating the mark’s generic status, may well indicate the enduring fame of the brand.” Laura A. Heymann, The Grammar of Trademarks, 14 Lewis & Clark L.Rev. 1313 (2010).  This is especially true for arbitrary or fanciful marks. 
“If the primary significance of such a mark to a majority of the consuming public is to differentiate one service from the services of others, then the mark is not generic. This is true regardless of whether the public also uses the mark as an indiscriminate verb.”  As a result, the proper test is whether the primary significance of “google” to a majority of the public who performs searches on the internet is a reference to the Google search engine as opposed to a descriptive term for search engines in general.
Google’s expert, linguist Geoffrey Nunberg, opined that for some “highly distinctive and famous marks,” “the name of a particular product is used to convey the genus without actually denoting it.” His expert report supported Google’s position that figurative uses of marks can include verbifying them “to denote the characteristic action associated with the product or service they represent.” His examples were TiVo, Fed–Ex, Skype, and Google.  As he noted, “when somebody says, ‘I need the book tomorrow-can you Fed Ex it to me?’ we ordinarily assume that a shipment by UPS will be acceptable as well, without assuming that the verb to Fed–Ex simply means to ship by priority courier.”
Google’s survey expert, Gerald Ford, conducted a Teflon survey, first asking participants in a phone survey whether “Hewlett Packard” and “computer” were brands names or common names. All 420 respondents successfully identified “Hewlett Packard” as a brand name and “computer” as a common name.  They were then asked to classify six terms: STP; Coke; Jello; refrigerator; margarine; and aspirin.  They were told that “don’t know” or “no opinion” were acceptable; “both” answers were also recorded.  They were then asked to classify five more terms: browser; website; Amazon; Yahoo; and Google, specifically with respect to searching on the internet.  The 19 respondents who said they didn’t search on the internet were subsequently excluded.
Ultimately, 93.77% of internet searchers identified GOOGLE as a brand name and 5.25% identified GOOGLE as a common name.  The results were similar for YAHOO!, and both beat COKE (89.53% brand name, 6.73% common name).  (I understand the rhetorical reason for taking these results out to two decimal places, but I doubt it’s really justified.)  The only mark that beat Google was AMAZON, 96.51 % and 2.99%, respectively.  Ford calculated that, at a 95% confidence level, his results had an estimated error +/-2.37%.
Elliot objected that the study was irrelevant because it didn’t account for verb usage.  While the 9th Circuit criticized Teflonsurveys in its Anti-Monopoly decision, Congress then passed the Trademark Clarification Act of 1984 to overturn that decision and “clarify that a mark may have a ‘dual purpose’ of identifying goods and services and indicating the source of the goods and services.”  The survey was relevant to answer the question of the primary significance of the term “google.”
Elliot’s counsel used “Google Consumer Surveys” to create surveys that asked respondents to select one of three answers to the prompt: “I most often use the word google to mean.” The 1,033 responses for the first survey were: “to search something on the internet” (52.2%); “the name of a specific search engine” (28.7%); and “the internet (in general) (19.1%).” The 1,007 responses for the second survey were “to search something on the internet” (72%); “the name of a company” (11.5%); and “the internet (in general)” (16.6%).  Plaintiffs argued that these results were evidence of a predominant use of “google” as an indiscriminate verb meaning to search on the internet.
The court found that there was no evidence these surveys were conducted according to generally accepted principles, or analyzed with reliable statistical methods.  Counsel didn’t have adequate training to design a survey or to interpret survey results. Nunberg, who the court found qualified to opine about designing survey questions about the meanings of words, testified that he thought the two main surveys were “worthless” because asking “what does X mean to you” is “the vaguest possible question you can ask” and because the possible responses did not allow respondents to answer that the word “google” meant “to use the Google search engine.” Because neither the surveys nor the opinions derived therefrom met the threshold standard of reliability under the FRE, they were inadmissible.
Plaintiffs’ consumer survey expert, James Berger, conducted a “substantially modified” Thermossurvey.  While the Teflon survey is more common, he used the Thermos version because it allowed him to test verb use.  (In a footnote, the court opined that there were doubtless better surveys for genericity than either, given that genericity is not binary as the primary sigificance test often frames it.  But of course advocates are conservative and only want to approve surveys that have a good chance of being admissible, a chance maximized by the form having actually been admitted in other cases.)  In the survey, 251 respondents were screened and then asked: “If you were going to ask a friend to search for something on the Internet, what word or phrase would you use to tell him/her what you want him/her to do?” Slightly over half of the validated respondents’ answers (129) contained the word google.
However, Berger testified that his survey did nothing to test whether consumers understand that “google” as a mark refers to one company (framed that way it’s tautological, though), and that it was not important to ask respondents about their understanding of the word google.  Indeed, he stated that his survey didn’t test the primary significance of “google” or whether the term was generic for search engine hardware and software.  Thermos surveys ordinarily ask several questions, but his survey asked only one substantive question.  The court found this opinion partially admissible (not the part where he opined about counsel’s surveys).  While there was no authority accepting a one-question Thermos survey, it wasn’t inadmissible junk science.
So, the heart of the matter: the primary significance of “google” to the consuming public.  First, Google got the strong presumption of validity conferred by its (incontestable) federal registrations, which includes the specific presumption of non-genericity.  Thus, Google met its initial burden of showing that plaintiffs hadn’t raised a genuine issue of material fact.  Plaintiffs were required to show specific facts from which a jury could find that GOOGLE was generic.
Relevant evidence includes dictionary usage; mark-holder usage; competitor usage; media usage; and consumer surveys.  Plaintiffs couldn’t find a dictionary whose definition of the word “google” neglected to mention the trademark significance of the term.  They attributed that to Google’s “intimidation.”  For example, Google asked wordspy.com to modify its definition of google (“To search for information on the Web, particularly by using the Google search engine”) to “take into account the trademark status of Google.” Likewise, Merriam-Webster stated that “we were trying to be as respectful as we possibly could be about Google’s trademark.” Viewing the dictionary evidence in the light most favorable to plaintiffs, it showed that “google” had meaning as an “indiscriminate” verb.
Mark-holder usage: Plaintiffs highlighted that Google’s co-founder Larry Page stated on July 8, 1998, “Have fun and keep googling,” and that entering the search query “define: google” into the Google search engine resulted in a verb definition of: “Use an internet search engine, particularly google.com.”  They also noted other domain names using “google” that they didn’t buy.  But Google also used GOOGLE as a mark in national ad campaigns; had policies establishing “strict standards” for third party uses; published rules and guidelines for use of the mark; and spent a lot of money policing use.  (It’s not a lot of money relative to how valuable the brand is (over $113 billion, estimated), but you don’t have to spend some arbitrary fraction of brand value on enforcement.)  Nonenforcement may be evidence of genericity, but on these facts it would be unreasonable to conclude that Google didn’t enforce its rights.
Competitors’ use: there was no evidence that competitors used the term in a non-trademark fashion.  Murphy Door Bed Co., Inc. v. Interior Sleep Sys., Inc., 874 F.2d 95 (2d Cir.1989), says that competitors’ non-use is not independently sufficient to prove non-genericness because threats of enforcement of the mark might deter use. But it’s still “peripheral[]” evidence that the mark is not generic. Competitors’ ability to accurately describe their products or services without using the term in question suggests the term is not generic. As a corollary, the existence of a short and simple descriptive term for the genus to which the trademarked species belongs also evidences the mark in question as not generic. “Internet search engine” is that term here.
Media use: plaintiffs argued that the media often used “google” as an indiscriminate verb.  Google noted that some of plaintiffs’ evidence also recognized the trademark significance of “google,” and plaintiffs didn’t find a major media outlet referring to a competing search engine as a “google.” This evidence showed that “google” is sometimes used as verb to mean search on the internet.
Consumer survey evidence confirmed that the word google is indeed used as a verb. Berger’s survey could be used to infer that a majority of the consuming public understands the verb to refer to the indiscriminate act of searching on the internet. But that wasn’t dispositive about primary significance; the Berger survey didn’t test the primary significance of “google.”
While summary judgment is disfavored in trademark cases (obligatory cite to 9th Circuit precedent, arguably honored more in the breach in both the originaland later senses of that phrase), it’s still appropriate when there’s no genuine issue of material fact. That was the sistuation here.  “Congress has spoken with particular clarity and force on the issue of whether a registered trademark is subject to cancellation as generic because it has more than one significance: ‘A registered mark shall not be deemed to be the generic name of goods or services solely because such mark is also used as a name of or to identify a unique product or service.’” Therefore, as a matter of law, a mark is not generic only because it simultaneously signifies more than just the trademarked product.  (That’s … actually not what the statutory language says at all, and it wasn’t what overruling anti-Monopoly was about.  Google’s search engine isn’t a unique product, which is why the verb use matters.)   
The court identified four possible meanings for “google”: (1) a trademark designating the Google search engine; (2) a verb referring to the act of searching on the internet using the Google search engine; (3) a verb referring to the act of searching on the internet using any search engine; and (4) a common descriptive term for search engines in general.  Cancellation would be appropriate “only if the fourth meaning is the primary significance of the word google to a majority of the consuming public.” 
But plaintiffs’ evidence only showed that (2) and (3) existed as meanings, and, drawing all reasonable inferences in their favor, that (3) was more significant than (2).  But the leap to “(3) is the most frequently used meaning” wasn’t justified, since plaintiffs had no evidence that verb use was more frequent than non-verb use.  And even if that leap were allowed, there was still no evidence to suggest that (4) was the primary significance of “google.”  It was undisputed that “well over 90% of the consuming public understands the word google with respect to searching on the internet as designating not to a common name, but a particular brand.” That fact established that (1) was more significant than (4) to a “vast majority” of the consuming public.  Even if a majority of the public understands (3) as a perfectly cromulent meaning, (1) and (3) weren’t mutually exclusive.  Summary judgment for Google on genericity.

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SCIPR: statistics and preview of next Term

Posted on September 12, 2014 by rtushnet
Supreme Court Analytics on the Past Term
Professor Edward Lee, IIT Chicago-Kent College of Law
Professor David Schwartz, IIT Chicago-Kent College of Law
Small sample!  6 patent cases from Fed. Cir., 5 reversed and 1 affirmed; 2 reversals in © cases; 1 reversal/1 affirmance in Lanham Act cases.  Overall 73% reversal of all cases incl. non-IP. Fed. Cir. may be special case b/c circuit splits aren’t an issue so they may be more likely to take cases they’re going to reverse.  Alice was affirmed, but it was of a 6-6 ruling that upheld the district court.  And when Lanham Act case was affirmed, the Court rejected the test used by the circuit court.
All 6 patent cases and both Lanham Act cases were unanimous; both © cases were 6-3.  Overall, Court was 66% unanimous including non-IP.  Voting alignments: Ginsburg-Sotomayor-Kagan were 100% in majority and together; other axes were Roberts-Kennedy-Breyer and Scalia-Thomas-Alito. SG participation: SG on winning side 7 times, not in Pom Wonderful.  Except in Alice, respondent received more questions in oral argument (or the same number); losing side always got more questions.
Rise in IP cases over last few years.  Bounces around over last 50 years, but in last decade there’s a relatively large increase from 2-3 year to high water mark of 10 and 6-7 a few years in a row.  Growth especially in patent cases.
Q: why?
Schwartz: Patent law is more in the news, possibly. Justices think the Fed. Cir. is getting it wrong.  Patent bar is more active in persuading Court that patents matter—cf. Kappos’s statement about the importance of IP to the economy.
Preview of the Upcoming Term: Cert. petitions granted & to watch, Supreme Court IP practice
Hana Financial, Inc. v. Hana Bank (Whether the court or the jury determines if use of an older mark may be tacked to a newer one.)
B&B Hardware, Inc. v. Hargis Industries, Inc. (Whether the Trademark Trial and Appeal Board’s finding of a likelihood of confusion precludes respondent from relitigating that issue in infringement litigation, and, if not, what deference should the trial court give to the TTAB finding.)
Teva Pharmaceuticals USA, Inc. v. Sandoz, Inc. (Whether a district court’s factual finding in support of its construction of a patent claim term may be reviewed de novo, as the Federal Circuit requires—and as the panel explicitly did in this case—or only for clear error, as Federal Rule of Civil Procedure 52(a) requires.)
Moderator: Professor Christopher Schmidt, Director, Institute on the Supreme Court of the United States (ISCOTUS), IIT Chicago-Kent College of Law
Panelists: Thomas Saunders, Counsel to POM Wonderful, Partner, WilmerHale LLP: Hana, TM tacking.  Priority of use is very important. Shouldn’t sacrifice rights from small adjustments to TM over time.  Very strict doctrine—some changes lead to lost ability to tack rights to prior mark.  Two marks should be “legal equivalents” for tacking purposes.  Question: who makes the determination, the judge or the jury?  9th Cir. says circuits take different approaches to whether confusion is an issue of law or fact; we think the same sort of issues come into play w/tacking so we say it’s an issue of fact.  Watch for: (1) Unlike IP cases without a split, this has a classic split and is harder to predict.  (2) Because of the likely confusion overlap, there’s a question of whether the back door issue of this case is how likely confusion should be treated. The way the case is being argued tends to delink those standards.  Emphasis on the particular aspects of tacking that might distinguish it.  (RT: But the Court in IP cases often goes beyond what the parties argued, as occurred in Wal-Mart, for example.)
B&B v. Hargis: TTAB deference.  Prevailing party in TTAB says you’ve had your chance to litigate so we win likely confusion if you don’t stop use.  8th Circuit says no.  One argument: if you give deference to another circuit whose confusion test differs somewhat, why wouldn’t you defer to the TTAB even if its confusion test differs somewhat as well?  So again, SCt may take up the broader issue of what the likely confusion standard is—whether all the circuits’ tests are essentially directed to the same thing even if they differ in wording.
Professor Peter Menell, University of California Berkeley School of Law: Teva v. Sandoz: very important case about case management.  Markmandéjà vu.  Fed. Cir. held to the idea that it was a question of law, though SCt called it “mongrel,” and treated it as subject to de novo review. This has been very controversial in the Fed. Cir.  Dct judges claim vehemently that this usurps their power/ability to put together a record and learn the science and tech. Resulted in very high reversal rate, at least initially; come down quite a bit, but not because the Fed. Cir. is now finding the dct gets the right answer but is rather losing interest.  Fed. Cir. is reviewing cases with mixed questions w/o much of a record, because dcts fear writing anything down.  A black box.  SCt will answer whether this is a Q of law.  Do dcts have a special role in finding factual Qs?  Dcts often don’t have special insight into what PHOSITA was like at the time of prosecution.
Strongest argument for affirmance: a lot of big tech companies don’t trust district judges and want second bite at apple.  He thinks that there should be a reversal but there’s a political element. Comes down to whether SCt thinks EDTex or Fed. Cir. is the more renegade jurisdiction.  He thinks: ultimate question is mixed question, and Fed. Cir. can always review that—if dct diverges from prosecution history, for example. But subsidiary questions like what a skilled worker would know are issues of fact. Issues are often not technical in a scientific sense but in a patent drafting sense, and the Fed. Cir. and SCt haven’t confronted that.  If reversed, dramatic effects on claim construction procedure: leeway to do evidentiary hearings and build a record.
Domenic Perella, Counsel to Highmark Inc.; Partner, Hogan Lovells LLP: Layman’s perspective on Teva.  Meaning of a document = generally a question of law.  If that’s not actually what goes on for people on the ground construing a patent, that’s important to educate the Court on, and he thought the topside briefs did a good job—what happened below was not legal interpretation but gathering of facts.
Mark Perry, Counsel to CLS Bank International, Partner, Gibson Dunn LLP: SCt has shown interest in nuts and bolts of federal procedure/practice, and all these cases are about proper allocation of authority of stakeholders in IP: jury/court, agency/court, dct/appellate court. Past Term: statute of limitations, discovery, tolling—Court has a renewed interest in these issues.
Jameson Jones, Counsel to Static Control Components, Partner, Bartlit Beck LLP: Ultimately Teva may not give a lot of guidance; it could say that the facts are very narrow—could be limited to “is molecular weight calculable in a number of different ways?”  How broadly you go with inferences from facts as legal ultimately will determine importance of case.
Menell: a lot of Markmancases are about ordinary terms interpreted in the context of the claim; scientists may read differently than we do, whereas they often agree on the meaning of exotic terms.  It may be true that statutory/contract interpretations rarely involve that kind of dispute over meaning of terms, but patents do.
Constantine Trela, Jr., Counsel to Alice Corp.; Partner, Sidley Austin LLP: Meaning of a term to a practitioner at the time is a legal issue b/c it’s the ultimate issue in the case.  If so, Fed. Cir.’s legal sails may not be much trimmed.
Menell: Ultimate Q is how you take what people think and nest it w/in the patent claim and specification. That’s where you get the room for Fed. Cir. to intervene.  Battle of experts is something dcts deal with all the time.
Q: why so many IP cases?
Menell: Court engaging in gap-filling exercises.  If you look at reform proposals from 10 years ago, the AIA only dealt with ½ the issues; the others were dealt with by the SCt or the Fed. Cir.  SCt had ignored patents but has now engaged; feel a responsibility to this area of the law. The beatings will continue until people behave/until the sense that the patent system is out of control dissipates.  Patent office has really cut back in the last year; there’s still enough mischief out there to see more patent cases.  Harder to see systematic source of cases for © and TM.
Perella: surges occur in many kinds of SCt cases—criminal, etc. Then the ripples dissipate.  Similar here.
Perry: disagrees. We’re watching a transformation of the economy into information-based, tech-based and the stakes are so high that an area of the law that used to be the province of subject matter experts in small regional firms is completely different now.  Multibillion-dollar cases being litigated w/huge downstream consequences. Congress has written into law a guarantee of litigation almost impossible to settle as part of Hatch-Waxman, so now it’s part of the business model.  Cellphones: at each other hammer and tongs.  So much economic incentive to sue.
Saunders: you get lots of reversals of the Fed. Cir. but with a vague standard, which puts authority back into the hands of the Fed. Cir. which has to interpret the standard in the average case. 

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SCIPR: false advertising

Posted on September 12, 2014 by rtushnet

Lexmark Int’l v. Static Control Components (Standard for determining standing for false advertising claim under the Lanham Act.)
POM Wonderful v. Coca-Cola (Standing under the Lanham Act to challenge food or beverage label as false or misleading though regulated by the Food, Drug, and Cosmetic Act.)
Moderator: Scott Burow, Partner, Banner & Witcoff Ltd.: is the new test in Lexmark, zone of interests plus proximate causation, better?
Panelists: Jameson Jones, Counsel to Static Control Components, Partner, Bartlit Beck LLP: Yes.  Focuses back on text and history of statute more than some unmoored 5-factor test.
RT: real Q is what proximate causation will mean. Will a competitor w/20% market share be able to plead proximate cause from false advertising by another competitor w/20% market share.
Thomas Saunders, Counsel to POM Wonderful, Partner, WilmerHale LLP: Static Control had huge market share according to SCt.  Big question mark remains.
Jones: definitely open-ended.  Background principle for all federal statutes.  Interesting parallel w/RICO cases.  Cts of appeals had developed theory of RICO standing, and SCt just decided that proximate cause was the right standard. Reputational interest in subject matter = generally proximate cause.  Small market player when someone else is falsely touting themselves = maybe you have trouble.  Suppliers to Static Control = not be able to establish proximate cause.
RT: worry about not allowing producers in competitive markets to sue, since they don’t have huge market share. Cause of action shouldn’t be reserved for monopolists/near monopolists.
Q: consumer standing?
Jones: SCt was clear, no. Defensible line in context of how Lanham Act came to be. Designed to enforce treaty obligations to protect people who entered the US market.  “Those engaged in commerce.” 
Saunders: “any person” language—as outside observer: opinion doesn’t like language of prudential standing.  Zone of interest = look at statute. But then you have very broad statutory language, to which they didn’t give effect.  What supplies the context/content?
Jones: text, context, history of statute. SCt has long history of saying “any person” doesn’t mean “any person.”
RT: protecting consumers was part of the text, context, and history. And consumers  also engage in commerce.
Jones: state consumer protection acts give protection anyway. Sellers need uniform federal remedy.
Q: will judges have more discretion to throw out claims?
Jones: not more than prior tests, especially reasonable interest circuits or Conte Bros.circuits.
RT: real issue is pleading standards. Some courts accept allegations of damage, others require further allegations.
Q: who’s in better position to enforce the law, FDA/private party?
Saunders: Private party. FDA is focused on health/safety, limited enforcement resources and information.
RT: not a competition. Some things FDA is needed for. Don’t want to denigrate FDA’s capabilities.
Saunders: complementary: not a preapproval regime where FDA looks at every label.  Pom has its own research surrounding pomegranate juice and a 100% product; Coca Cola’s cheaper product deceives consumers into thinking they’re getting the premium product not apple and grape.  Different from FDA’s separate health concerns.
RT: also FDA has interest in consistency/consumers’ ability to rely on statements being the same across different foods.  Adding information into the market.
Jones: if FDA requires something, Lanham Act couldn’t require its removal.
Q: Kennedy says competitors know more about the market.
Saunders: certainly right.  It’s really less about undermining FDA than national uniformity: what if one jury says label should’ve been larger and another says something different. Coca-Cola’s argument was let FDA be the centralized figure answering the question.
RT: FDA does know stuff about the market; they generalize: small print doesn’t work generally; don’t need a study specifically about yours.  Don’t threaten that!
Saunders: Preclusion remains. Express preemption for certain state law claims.  Opinion’s discussion of uniformity: standards based approach can be applied by individual juries but can be nationally uniform if it comes from one statute, like the Lanham Act.
Q: more cases?
Jones: modest uptick. Not necessarily huge.
Saunders: litigation economics matters. Still might not make sense to sue over low-level harm. Or more as an added claim in an existing case. The cases before the Court are big deals for the core businesses of the Ps.
RT: compare Dastarand Wal-Mart: Court sent strong signals about narrowness and here breadth of statute.  Seeing similar use of Pom Wonderful and Lexmark: introductory statements about breadth of statute are picked up in other cases not really about the same things.
Jones: publicity matters; being in the SCt matters.
Q: did Lexmark weaken reliance on prudential standing?  Declaratory judgments maybe.
Jones: Designed to give guidance across fed statutes.  Court signals that it hates prudential standing as a term because it suggests judicial freedom, but it’s a similar inquiry w/different words. Shift in focus/semantics. Proximate causation still remains an issue.
RT: lower courts are clearly ignoring that semantic shift.  Substance: Starting to see sporadic use of the zone of interests/proximate cause test in TM, but not much yet. Can imagine it increasing.
Ed Lee: is the bottle misleading?
Jones: yes. Surprised at how little pomegranate juice was in it.
RT: Justice Kennedy clearly thought it was a fraud.  Conventional wisdom: if the judge thinks it’s deceptive, it is, reasonable consumer standard aside.

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SCIPR: patents (Alice/Nautilus)

Posted on September 12, 2014 by rtushnet
Alice Corp. v. CLS Bank (Patentable subject matter of software-related inventions)
Nautilus v. Biosig Instruments (Patent indefiniteness)
Moderator: Thomas Pasternak, Partner, Steptoe & Johnson LLP
Panelists: Constantine Trela, Jr., Counsel to Alice Corp.; Partner, Sidley Austin LLP: Alice: We know that reciting computer components isn’t enough. Improving the operation of the computer, data handling, etc. seems to be PSM. Big area in between; not a lot of guidance on that. 
Mark Perry, Counsel to CLS Bank International, Partner, Gibson Dunn LLP: Is there enough guidance?  There is important guidance, but how much is enough?  SCt has been incremental.  Deliberatelytried not to craft a fit-every-case, answer-every-question standard.
Professor Rebecca Eisenberg, University of Michigan Law School: we need to go back to Diamondto find a clear statement of what isPSM (other than cDNA); hopefully this will eventually show up with software.  Not very illuminating.
Professor Ronald Mann, Columbia Law School: disappointing pattern: take big cases, then become scared that they’ll ruin the economy if they say something big and say as little as possible. Fed. Cir. then tries to deal with it and eventually the opinions from Fed. Cir. make no sense because each judge is trying to pick the language from  the previous SCt opinion that they think is really the test. 
Perry: problem is in part overthinking. Bugs in the forest = not patentable.  Bugs built in the lab = patentable.  Economic principles = not.  But, you can find sentences in every opinion that will support anything and throws it open to the litigators.
Trela: Fundamental problem: if abstract idea is the trigger, Court is incredibly unclear about what an abstract idea is. Economic principles everyone knows may be obvious, but does that make them abstract? Algorithms, formulas, natural laws: rationales given for unpatentability are about withdrawing things from the storehouse of human knowledge, inherent in nature/mathematical relationships. Makes sense doctrinally, but when you get to economic concepts, they may be obvious, but if I come up with a wild idea like “make energy from cigarette butts” I may have an implementation problem but I haven’t withdrawn anything from the storehouse of human knowledge.
Perry: Part of the problem is, as Prof. Eisenberg said, that they’re working through the problem by telling us what’s not PSM but not what is. Fear of foreclosing technologies they don’t understand (cf. Aereo discussion at oral argument).  Doing it with a computer = not inventive because they have computers.
John Vandenberg, Counsel to Nautilus, Inc., Partner, Klarquist Sparkman LLP: SCt sees patents as a two edged sword. Q is whether the benefit from allowing claims of this sort outweighs the risk. 
Eisenberg: inventive concept is an unfortunate term.  Leaves impression that it’s more like 103, not what the Court intended.  PTO’s guidelines have offered a bunch of alternative factors to see whether there’s enough there beyond excluded matter.  If we had a clearer understanding of what an abstract idea/natural law/natural product maybe we wouldn’t have to collapse 101 into a seat of the pants 103 analysis.
Mann: abstractness may provide a less institutionally well suited way to dispose of cases than the other bars.  Judges say “this doesn’t sound inventive” but what do they know about business software?  It’s inherently situational.  Could use more contextual knowledge.
Eisenberg: agree (on this).  More interested in that on the nature side than the abstractness side. 102 has a discipline for figuring out the state of human knowledge to guide decisions, provide source of information. By contrast there’s no guide to figuring out what nature knows—isolated DNA is naturally occurring, but cDNA isn’t, per amicus briefs.  Imagining a magic microscope, but how do we know what that reveals?  We only have real microscopes.
Perry: only a problem at the tail end of the distribution (general groaning results).
Vandenberg: software patents no longer make sense for a small business—even if you get through the PTO you might be challenged.
Eisenberg: the only cases we’ve seen have been computer implemented business methods rather than broader software, but her expectation is that broadly claimed software patents are in trouble.
Mann: some patents are very specific, and we haven’t had cases about electronic inventions. Smartphone patent—completely intangible/electronic, but actually applied—you might see the Court have the nerve to say something’s patentable.  The patent in this case seemed the same as the patent in Bilskito them. They think the case means ‘we really meant it in Bilski.’
Perry: Google, BSA, etc. filed on the Bank’s side; didn’t view the case as threat to their industry, though some of them aren’t patent-reliant companies.  (Note from someone, sorry, that Microsoft is a defendant in half the software patent cases.)
Q: turn to Nautilus.
Vandenberg: Fed. Cir. test: if claim was amenable to construction, and not insolubly ambiguous, that was enough.  That language was curious and sent a message to trial courts that they shouldn’t waste time on indefiniteness. Chance of being reversed on claim construction is high enough anyway.  Only in means plus function was Fed. Cir. rigorous.  SCt: no one defended insoluble ambiguity.  We think Nautilus means not a post hoc approach. Not can you figure out, but can a follow on innovator look at the patent the day after issue and have reasonable certainty what’s covered.
Trela: Claim construction in theory tells you what claim meant to person of ordinary skill at the time. It’s only post hoc in the sense that all litigation is post hoc. What’s wrong with looking at claim construction?
Vandenberg: our patent was out of reexamination; pretty established that if you have reexamination you get to use the history of that too.  You can’t have a crystal ball to figure out what will happen. Fed. Cir. said “it’s clear because the reexaminer accepted this argument.”  Claim construction can be very hard; fact that it can be done shouldn’t tip scales against a finding of indefiniteness. There’s always a right construction, even when there isn’t really: because the claim must be construed.
Eisenberg: in order to exercise active appellate review, Fed. Cir. and SCt want to attribute meaning to the claim language; it becomes hard to say “this is ambiguous” even when a dct assigns one interpretation and a split appellate panel gives 2 more.  That’s ambiguity; if 3 different views are possible after studying the patent closely, then, even if each one is confident, indefiniteness exists. Likes focus on claim language as central and important and something applicants can do better on.
Mann: example of legal sociology.  What’s the difference between SCt standard and Fed. Cir. standard?  Probably nothing. Just keep “insolubly ambiguous” out of it.  They’ve accomplished a change in the status quo: dcts were told that if they invalidated on indefiniteness grounds they’d be reversed; now they won’t (necessarily) be.
Perry: this, unlike Alice, is really designed to influence primary conduct of patentees. Encourages them to write better and more claims.  Eisenberg mentioned claim by claim approach; we’ll see some claims getting wiped out while others survive. This ought to produce better patents down the road.
Mann: best part of briefs were discussion of the incentive to write indefinite claims in the hope that 20 years from now it would cover something.  That had a real effect on the Court.
Vandenberg: praises Gibson & Dunn for partnering on the briefs, but as a patent lawyer he contributed, among other things, a book of advice to patent lawyers/treatises & articles about the importance of including ambiguous claims. More ambiguous = more powerful, harder to innovate around; the zone of uncertainty was deliberate, and the Fed. Cir.’s standard encouraged that kind of practice.

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SCIPR: David Kappos keynote

Posted on September 12, 2014 by rtushnet
Keynote Lecture: “Stalemate or Statesmen? What Is Needed to Move Forward Constructively with the Balancing of America’s IP System”
Speaker: David Kappos, Partner, Cravath, Swaine & Moore
We’ve demonstrated ability to achieve stalemate. Not likely to change unless we step back from political fray and bring diverse but not incompatible interests together.  IP-intensive industries provide millions of jobs.  But that doesn’t mean that all is perfect in the underlying system. They said the AIA couldn’t be done, but it was—now how do we fix patent litigation?
There’s no solution to stop all aggressive litigation tactics that won’t marginalize the patent system to the point of irrelevance. One person’s abuse is another’s defense of a right. Americans have always been litigious. 
Judges can do a good job within the system: we had hot debates over things like the standard for obviousness and royalties in patent cases.  We ultimately found ourselves at an impasse, but the Court stepped in and in major decisions completely solved various problems.  KSR (obviousness); Seagate(willful infringement); eBay(injunctions); etc. Same scenario now: Court is addressing remaining challenges in litigation.  Participants in the debate naturally want more.  Some say court decisions aren’t as permanent as legislation, but permanence improves over time as judicial precedent takes shape.  But legislation is needed to address problems the courts can’t.
Topic 1: fee-shifting.  Helpful decisions have emerged since Octane Fitness.  Cal. ct. ordered a company to pay fees after it filed an unreasonable infringement suit.  Judge considered whether P’s attys should be sanctioned for filing an unreasonable suit. The better part of valor is to let the system work. Don’t act preemptively.
Topic 2: demand letters. Pending troll bill substantially addresses this issue.  One person’s aggressive demand letter is another’s defense of her property. Troll bill does what reasonably can be done.
Topic 3: discovery.  Legislative provision should be aspirational (respect separation of powers)—heighten pleading requirements where sensible but using Judicial Conference as implementation vehicle for staging, etc.  Wouldn’t be panacea but would have virtue of leaving decisionmaking authority to those best suited to react to particular circumstances in front of them. It’s true courts have had time to deal with these issues but haven’t, but it’s also true that courts are more focused on these issues than in the past. Congressional encouragement would give reason to fix it themselves. 
Topic 4: covered customer stays. Retailers, coffee shop owners etc. want to be left out of suits targeting their off the shelf tech products.  Seems logical at first that such users should be dismissed. Problem: many technologies are highly customizable and it’s difficult for a fixed statute to figure out if an infringement is inherent in an acquired IT solution, or whether the situation is caused by aftermarket user modifications, in which case the user shouldn’t be permitted to walk away. A bright line can be drawn, but customer added modifications are too complex/varied for any bright line rule.  Fortunately, courts have stepped in.  June: Nintendo and 11 retailers won a writ of mandamus from Fed. Cir. instructing dct to sever and stay claims of patent infringement against retailers while case against Nintendo proceeds.  Drew a distinction b/t manufacturer of potentially infringing game and retailers.  Demonstrates the courts generally know how to deal with customer stay petitions and law already provides for proper handling—mere retailers have succeeded in 18 of 24 motions to stay filed in the last 15 years.  A calibrated solution is in order for the limited issues with covered customer stays.
Topic 5: CLS Bankand Myriad: While fixing law, why not deal with cases where courts have stuggled with policy and tech and provide guidance in what’s plainly legislative territory? Congress has declined for over 200 years to enact limits on PSM except in most extreme cases.  SCt has heard 9 cases in last 50 years over PSM, creating a hash of decisions that can’t be reconciled.  Bilski, Prometheus, and the other 2 finally appear to be circling around the best available standard, abstractness. This isn’t objective, admittedly, and hard to charge patent examiners with it.  Currently: A coarse test that eliminates only the clearest of infractions; overreliance on §101 is dangerous to our country’s economic health. Codifying abstractness narrowly could, in one step, steer away from overreliance on §101 and reassure innovators that breaking new ground in biotech, 3D visualization, etc. is every bit as inventive as others.
Topic 6: Nautilus: Decisive action where it is needed to reenergize requirement clear disclosure of claims and specifications as part of the bargained-for exchange that is the patent system.  Codification of claim definiteness would do as much to curb abuse as any of the proposals debated this year.
Topic 7: PTO funding.  Fees should be retained. This would do more for job creation/economic growth than any other patent reform proposal currently on the table. If granted access to user fees, USPTO is in position to hire, train and retain a quality workforce granting quality patents that are defensible and not used as tools of abuse.  Make the USPTO’s own resources available to the agency, increasing speed andcare.
Q: how can Chicago IP community get more involved in patent reform?
A: academics focused on data-driven research.  Study from last year, in part from Chicago-Kent, going through the so-called dramatic increase in litigation, revealed to the world that this wasn’t just trolls but was more complicated, was a breakthrough.  Raising your voice to support that.
Rebecca Eisenberg: codification of abstractness as imperfect but best we can do.  But it seems like it was the only thing the SCt could agree on because they didn’t want to adopt any new nonstatutory limits.  But if you’re going to Congress, Congress could do more than shovel computer programs into abstractness which previously was about E = MC2 and the like. Why codify something so flawed?
A: The most difficult issue that faces our patent system right now.  Big regret: shouldn’t have left §101 at the beginning of the patent statute, as if it was Contracts 101.  It should be the backstop and not the first stop.  102, 103, and 112 examination is sufficient—if you pass those, 101 should be no problem. 101 is the hardest place to try to craft clear standards.  You should almost never reach it, and PTO almost never does.  Abstractness is the best courts have come up with; if we try to move to something more precise and clear, we’ll find as we did in © that we can’t anticipate the future. Our great strength is flexibility—avoid the temptation to tie things down too quickly in patent law.  Flexibility means ambiguity; we have to come to grips with that. A very generic term like abstractness or something similar is about the best we can do; need to settle the issue and keep moving.

My one comment: it’s interesting that I’ve heard nothing about design patent here.  The cases haven’t (yet) reached the Supreme Court, but when we talk reform, design patent should probably be on the agenda too.

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SCIPR: Aereo

Posted on September 12, 2014 by rtushnet
ABC, Inc., v. Aereo, Inc. (Aereo’s Internet streaming of local TV broadcasts to individual subscribers is a public performance.)
Moderator: Bart Lazar, Partner, Seyfarth Shaw LLP
Panelists: David Frederick, Counsel to Aereo Inc.; Partner, Kellogg Huber Hansen PLLC: There’s a lot here for all sides. Plenty of broad language, but a lot of caveats that suggest that in the long run this is a one-trip only train ticket: for services that look like cable. Broad definitions of public performance get undercut by later parts of the opinion.  Surprised that J. Breyer was in the majority.
Paul Smith, Counsel to petitioner broadcasters; Partner, Jenner & Block LLP: Agreed about Breyer.  Statute is written very broadly to cover anyone who tries to build a business on retransmitting broadcast television.  Various caveats about the cloud.
Professor Peter Menell, University of California Berkeley School of Law, who co-authored an Amici Curiae brief in support of Petitioners ABC and others: also surprised about Breyer, famous for skepticism about ©. Saw it as statutory construction case—dueling about broader issue than ©–textualism v. purposivism.
Professor Rebecca Tushnet, Georgetown University Law Center: yep. Opinion somewhat at war w/itself b/c first part is textualist.
Q: language is unclear, according to majority. Agree?
RT: both views produced unacceptable results in some circumstances.  I think this is best explained as a copyright evasion theory, on the order of tax evasion v. tax avoidance.
Menell: statute is 40/50 years old (this language); would have been heroic to anticipate.  Congress also expected purposivism at that time. Judges trying their best—unusual leg. History intertwined w/two SCt decisions.
Smith: statute was written as broadly as it could have been incl. new technologies that might be invented.  Don’t get this kind of provision any more, but the function of retransmission ought to be licensed.  Don’t agree it’s ambiguous. Other tech used as scare tactic.
Frederick: 2d Cir.’s Cablevision case (great puzzle of this opinion is what’s going on w/Cablevision) had a great statutory analysis of the transmit clause and contradiction in position over whether what’s being transmitted is a performance or a copy of a performance. That inconsistency was fatal to transmit argument, we argued.  The statute itself doesn’t cohere in the same place/different places/different times clause—there’s a null set in the last part of the clause.  Which way does that cut? When there’s ambiguity in a property conferring statute, ordinarily the alleged infringer is given a pass and Congress can respond to powerful lobbying group to make changes.  Court flips: tie goes to party alleging infringement.
Q: Scalia cites Cablevision: doesn’t select what content subscribers view.  Volitional conduct required.  Is there volitional conduct here? Does majority repudiate Cablevision?
Smith: yes. (1) customer picking show to be watched means only secondary liability is appropriate—that’s gone. (2) transmit clause requires you to look at each transmission separately to see if it’s public—that’s clearly repudiated.  Looking at who pushes the last button: everything on the internet is on demand.  If there’s only indirect liability, there’s no public performance on the internet. Not different from POV of broadcasters or viewers.  You punch in the channel you want on Aereo or on your cable machine. Why should that make a difference for © policy?
Menell: Cablevision is now very shaky.  Volitional conduct isn’t in the statute.  Highlights creakiness of statute.  Netcom, pre-DMCA, had a thoughtful analysis but Congress didn’t codify that.
Smith: Scalia just made up the distinction between Aereo & Netflix. Both choose which shows to show.
Frederick: disagree. VOD chooses which programming to make available versus what Aereo did: antenna capability we all can get in our homes.  Networks choose what is put over the air.
RT: under this opinion, the statutory interpretation part clearly implicates the cloud.  I’m 100% sure that Dropbox has multiple copies of U2’s new album right now, from people who use both Dropbox and iTunes.  When someone uses Dropbox to stream their music to their phone, it’s just like what the SCt said was public performance.  If you say that Dropbox is different because it’s the user’s copy, so it was in Aereo.  If you say the standard is why people use the service, that’s really not in the Act, though you can certainly do it if you’re the Supreme Court.
Menell: can save Dropbox: it gets the content from the user, a sort of chain of custody analysis. That’s a way to draw the line Breyer sought to draw. Not sure how it works for broadcast TV though.  If I take my Netflix stream and DVR it, if it violates my Netflix agreement then the chain of custody doesn’t map to the current broadcast system. We can apparently “sling” these shows but that’s b/c we have our own copy. In the cloud it’s more complicated. 
Q: disruptive tech always creates headaches. Is this an issue that courts can apply?
Smith: remains to be seen. Distinctions might or might not be justified. Congress is dysfunctional now; courts will have to sort it out.
Q: dissent says there’s no standard for cable lookalike.
Smith: majority says performing this function = liability. Same function as cable co.
Frederick: So is Tivo.
Smith: not going to comment on that. Aereo: from the POV of the user, identical to cable.
Menell: true that Congress overruled Teleprompter and Fortnightlyand required CATV to operate under a license, but they got a low-cost convenient license, splitting the baby. CATV was more sympathetic than Aereo but Congress was willing to slap them down (people who can’t get signal and join together to form a nonprofit are sympathetic). There should be room for a sensible competitive regime.
RT: since Congress won’t act, and Court knows it, it’s not in the same situation as Teleprompterand Fortnightly; has to choose between two alternatives and can’t impose compulsory license.
Frederick: paying individual copyright owners for signal was unadministrable.  1992: retransmission rights were designed to solve the problem of broadcasters and cable cos. competing for ad revenues. But Aereo isn’t competing for ad revenues. It’s sending the advertising through complete. Not picking off signal and omitting ads. Networks are being hypocritical and saying Aereo isn’t cable either.  The networks want to monetize the internet and replace free over the air television with a paid service.  (Currently in dispute.)
Smith: the idea that networks aren’t licensing on the internet isn’t true. Hulu etc. allows licensed viewing. Issue was whether you could avoid a license.
Frederick: networks recognize they were slow to the market. Want to sell over the internet.
Smith: they own the rights.
Frederick: evades Sony.  I can have an antenna in my home and not pay.
Smith: Congress overruled that for CATV.
Frederick: then Congress also made local broadcasts royalty-free.
Menell: internet TV has a bright future. Early skirmish. Other companies will try to figure out how to function consistent with this. Public solution via legislation not Rube Goldberg would be better.
RT: I don’t make predictions about the future of the internet.  Net neutrality is of real significance to the future of TV online more than Rube Goldberg devices.
Ochoa: if sufficiently like cable to be publicly performing, why not enough to get a license?
Smith: transmit clause: satellite companies also transmitted, but weren’t authorized to get cable licenses. Do what satellite cos. did: go to Congress.

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