Skip to content

Limits on Conditions Subsequent

Case and Court:

Tessera, Inc. v. Int’l Trade Comm’n, 2010-1176 (Fed. Cir. May 23, 2011).

Yesterday the Federal Circuit upheld a decision of the ITC regarding patent exhaustion: Tessera, Inc. v. International Trade Commission. The patent holder permitted its licensees to sell the patented invention and received royalty payments later. When some licensees failed to pay, the patent holder argued that its authorized sales had been transformed into unauthorized sales and thus that the licensees’ customers were infringing the patent. The Federal Circuit rightly disagreed,

These agreements expressly authorize licensees to sell the licensed products and to pay up at the end of the reporting period. Thus, in these agreements, Tessera authorizes its licensees to sell the licensed products on credit and pay later. That some licensees subsequently renege or fall behind on their royalty payments does not convert a once authorized sale into a non-authorized sale. Any subsequent non-payment of royalty obligations arising under the TCC Licenses would give rise to a dispute with Tessera’s licensees, not with its licensees’ customers.

Tessera’s argument that the sale is initially unauthorized until it receives the royalty payment is hollow and unpersuasive. The parties do not dispute that the TCC Licenses permit a licensee to sell licensed products before that licensee pays royalties to Tessera. But according to Tessera, that licensee’s sale, permitted under the TCC License, would later become unauthorized if that licensee somehow defaulted on a subsequently due royalty payment. That absurd result would cast a cloud of uncertainty over every sale, and every product in the possession of a customer of the licensee, and would be wholly inconsistent with the fundamental purpose of patent exhaustion—to prohibit postsale restrictions on the use of a patented article. See, e.g., Bloomer v. McQuewan, 55 U.S. (14 How.) 539, 549 (1852) (stating “when the machine passes to the hands of the purchaser, it is no longer within the limits of the monopoly”).

It is this same absurd result and the same cloud of uncertainty that results after every sale of a copy of software in light of the Ninth Circuit’s worst copyright opinion in decades: Vernor v. Autodesk, 621 F.3d 1102 (9th Cir. 2010). By permitting postsale restrictions on the use of software the Ninth Circuit has adopted a view of the Copyright Act wholly inconsistent with the fundamental purpose of copyright exhaustion–i.e., the first sale doctrine.

Vernor’s counsel has recently filed an excellent brief petitioning for a writ of certiorari, and one can only hope that the Supreme Court will choose to straighten this out so that we can get opinions in the copyright context as cognizant of the harms of ignoring exhaustion principles as this opinion is in the patent context.

Categories: Copyright Limitations and Exceptions, Patent.

The Boundless Border Search Exception

Court and Case:

Background

When the colonies adopted a Constitution for these United States a few abuses of government power were of such significant concern that they were singled out as beyond the power of government in the Bill of Rights. Unreasonable searches and seizures were among these abuses and are forbidden by the Fourth Amendment.

The Supreme Court recalled the basis of this concern in its 1886 opinion, Boyd v. United States, 116 U.S. 616 (1886):

In order to ascertain the nature of the proceedings intended by the Fourth Amendment to the Constitution under the terms “unreasonable searches and seizures,” it is only necessary to recall the contemporary or then recent history of the controversies on the subject, both in this country and in England. The practice had obtained in the colonies of issuing writs of assistance to the revenue officers, empowering them, in their discretion, to search suspected places for smuggled goods, which James Otis pronounced “the worst instrument of arbitrary power, the most destructive of English liberty, and the fundamental principles of law, that ever was found in an English law book;” since they placed “the liberty of every man in the hands of every petty officer.” This was in February, 1761, in Boston, and the famous debate in which it occurred was perhaps the most prominent event which inaugurated the resistance of the colonies to the oppressions of the mother country. “Then and there,” said John Adams, “then and there was the first scene of the first act of opposition to the arbitrary claims of Great Britain. Then and there the child Independence was born.”

This history of the origins of the Fourth Amendment stands in stark contrast to its interpretation in the context of searches and seizures at the international border (or its “equivalent”) and this already-broad exception appears to have now “swallowed the rule” especially in digital contexts. The border search “exception” that has grown up in non-digital contexts is sometimes summarized with statements such as,

Generally, “searches made at the border… are reasonable simply by virtue of the fact that they occur at the border…” United States v. Ramsey, 413 U.S. 606, 616 (1977).

This exception for the international border creeps inland with the following sort of reasoning:

Searches of international passengers at American airports are considered border searches because they occur at the “functional equivalent of a border.” Almeida-Sanchez v. United States, 413 U.S. 266, 273 (1973).

And thus, searches of various types of items have been upheld even where those searches were not based on any particularized suspicion:

While the argument that the border search exception is fundamentally flawed in all contexts is not frivolous, it’s persuasive authority would depend on displacing an extremely long line of precedents. However, more recently a narrower argument has been made that new contexts created by ubiquitous digital devices requires the case law in the border search context to take a new direction. Digital devices such as laptops, and increasingly, smartphones, are capable of massive amounts of storage of all manner of information about the most private areas of one’s life. The argument thus would suggest that this is not merely a change in the degree of the intrusiveness of suspicionless government searches, but a fundamental change of kind that requires a different result.

When applying these non-digital border search precedents to a suspicionless laptop search, the Ninth Circuit recently concluded that reasonable suspicion is not needed for customs officials to search a laptop or other personal electronic storage devices at the border. United States v. Arnold, 533 F.3d 1003 (9th Cir. 2008).

Cotterman at the District Court

This expansion of the border search exception seemed to finally have found a limit in another laptop case, United States v. Cotterman, No. 07-01207, 2009 WL 465028 (D. Ariz. Feb. 24, 2009) (Order adopting Magistrate’s Recommendation), in which the district court concluded that when a laptop is seized at the border and then a forensic search of the laptop is conducted 170 miles away from the border over a period of four days (without a search warrant) that this constitutes a non-routine border search that requires reasonable suspicion.

Cotterman at the Ninth Circuit

On March 30, 2011, the Ninth Circuit reversed the district court. United States v. Cotterman, No. 09-10139 (9th Cir. 2011). The court summarized,

We find no basis under the law to distinguish the border search power merely because logic and practicality may require some property presented for entry—and not yet admitted or released from the sovereign’s control—to be transported to a secondary site for adequate inspection. The border search doctrine is not so rigid as to require the United States to equip every entry point—no matter how desolate or infrequently traveled—with inspectors and sophisticated forensic equipment capable of searching whatever property an individual may wish to bring within our borders or be otherwise precluded from exercising its right to protect our nation absent some heightened suspicion.

Still, the line we draw stops far short of “anything goes” at the border. The Government cannot simply seize property under its border search power and hold it for weeks, months, or years on a whim. Rather, we continue to scrutinize searches and seizures effectuated under the longstanding border search power on a case-by-case basis to determine whether the manner of the search and seizure was so egregious as to render it unreasonable.

The decision was reached over a vigorous dissent:

I would hold that officers must have some level of particularized suspicion in order to conduct a seizure and search like the one at issue here, because (1) seizing one’s personal property deprives the individual of his valid possessory interest in his property, and (2) authorizing a generalized computer forensic search (untethered to any particularized suspicion) permits the Government to engage in the type of generalized fishing expeditions that the Fourth Amendment is designed to prevent.

With this latest holding, it is unclear whether even time and space can limit the apparently boundless border search exception. Instead, it appears that once again the liberty of every man is in the hands of every petty officer.

See also:

Categories: Fourth Amendment.

Judge Chin rejects Google Book Search Settlement

After many months of consideration, Judge Chin has finally issued his order rejecting the proposed settlement of the Google Book Search (GBS) class action.

Overall, the decision is not too surprising. Class action law gives judges like Chin quite a bit of discretion in approving or rejecting settlements in terms of whether or not they are considered “fair, adequate, and reasonable.” That’s a lot of wiggle room, especially for uncharted waters such as the GBS case. With over 500 submissions, Chin had quite a bit to consider.

In summary, Chin rejected the proposed settlement for five key reasons: (1) It overreached in trying to license orphan and international works; (2) it tried to settle legal issues that were not part of the original lawsuit (e.g. full display of books online); (3) Congress is better suited to craft the right legal rules for the future of online books than a class-action lawsuit; (4) there was significant diversity of opinion among the class of plaintiffs as to the right outcome of the case; and (5) it raised anti-trust concerns, especially regarding metadata markets such as search results related to the Google Book corpus. Chin suggests at the end of the order that changing the prospective relief licensing scheme from “opt-out” to “opt-in” might mitigate these concerns and lead to approval down the road.

The following were passages I found most interesting in the order:

  • “The questions of who should be entrusted with guardianship over orphan books, under what terms, and with what safeguards are matters more appropriately decided by Congress than through an agreement among private, self-interested parties. Indeed, the Supreme Court has held that “it is generally for Congress, not the courts, to decide how best to pursue the Copyright Clause’s objectives.”
  • Second, the ASA would release claims well beyond those contemplated by the pleadings. This case was brought to challenge Google’s use of “snippets,” as plaintiffs alleged that Google’s scanning of books and display of snippets for online searching constituted copyright infringement. Google defended by arguing that it was permitted by the fair use doctrine to make available small portions of such works in response to search requests. There was no allegation that Google was making full books available online, and the case was not about full access to copyrighted works. The case was about the use of an indexing and searching tool, not the sale of complete copyrighted works.”
  • “While the named plaintiffs and Google would argue that these authors can simply opt out, the comments underscore certain points. First, many authors of unclaimed works undoubtedly share similar concerns. Second, it is incongruous with the purpose of the copyright laws to place the onus on copyright owners to come forward to protect their rights when Google copied their works without first seeking their permission. Third, there are likely to be many authors — including those whose works will not be scanned by Google until some years in the future — who will simply not know to come forward.”
  • “The ASA would arguably give Google control over the search market.”
  • “The ASA would broadly bar ‘direct, for profit, commercial use of information extracted from Books in the Research Corpus’ except with the express permission of the Registry and Google.”
  • “Google’s ability to deny competitors the ability to search orphan books would further entrench Google’s market power in the online search market.”
  • “The privacy concerns are real. Yet, I do not believe that they are a basis in themselves to reject the proposedsettlement.” … “I would think that certain additional privacy protections could be incorporated, while still accommodating Google’s marketing efforts.”
  • “The fact that other nations object to the ASA, contending that it would violate international principles and treaties, is yet another reason why the matter is best left to Congress.”
  • “As the United States and other objectors have noted, many of the concerns raised in the objections would be ameliorated if the ASA were converted from an opt-out settlement to an opt-in settlement. I urge the parties to consider revising the ASA accordingly.”

Categories: Copyright, Copyright Limitations and Exceptions.

Ninth Circuit decision in MDY v. Blizzard

Case and Court:

MDY Indus. LLC v. Blizzard Entm’t, Inc., Nos. 09-15932, 09-16044 (9th Cir. Dec. 14, 2010).

Today the Ninth Circuit gave a mixed result to both parties. We have previously discussed this case as part of the three copy ownership cases before the Ninth Circuit.

Overview:

  • MDY is not liable for secondary copyright infringement because Blizzard’s “no-bots” provision was merely a contractual “covenant” and not a condition whose violation would amount to copyright infringement. To be such a condition it must be a “restriction[] that [is] grounded in [a copyright holder's] exclusive rights of copyright.”
  • Following Vernor, users of World of Warcraft are not owners of their copies of the software (madness!) and therefore are not entitled to a Section 117 defense.
  • The Ninth Circuit really, really, really hates the Federal Circuit’s Chamberlain decision and explicitly rejects the idea that there should be a nexus with infringement before a violation is found of the anti-circumvention provision regarding access controls in 1201(a)(1).
  • A tortious interference with contract claim under Arizona law is not preempted by the Copyright Act.

Upshot:

  • The court is grasping towards the right sort of resolution to the condition/covenant distinction, but doesn’t really give us enough to sort out tough cases.
  • The holding on copy ownership turns out to be entirely unnecessary since the secondary copyright liability was resolved based on the condition/covenant distinction instead.
  • Your garage door openers may start coming with lengthy EULAs in the Ninth Circuit and it just might end up being a DMCA violation to buy a replacement opener made by a third party. (More madness.) Some of the sanity that Chamberlain brought to DMCA jurisprudence slipped away today.

See also:

Categories: Contract, Copyright, Copyright Limitations and Exceptions, DRM and Anti-Circumvention, Online Gaming.

Portion of Stored Communications Act Unconstitutional

Court and Case:

United States v. Warshak, No. 08-3997 (6th Cir. Dec. 14, 2010).

Stop me if you’ve heard this one before…

Under the Stored Communications Act, when a governmental entity seeks disclosure of stored communications it is required by 18 U.S.C. §2703(b) to provide notice to the target.

18 U.S.C. §2705 establishes a process by which they can delay that required notice:

  • For a period not to exceed 90 days;
  • Only if either a court determines or a supervisory official certifies that one of five adverse results may occur if the required notice is provided; and
  • 90 day extensions are allowed only by the court or certification.

Under 18 U.S.C. 2703§(d), the Stored Communications Act allowed government-compelled disclosure of emails on a standard of less than probable cause:

A court order for disclosure… shall issue only if the governmental entity offers specific and articulable facts showing that there are reasonable grounds to believe that the contents of a wire or electronic communication, or the records or other information sought, are relevant and material to an ongoing criminal investigation. (emphases added)

Compare this with the probable cause standard for a search warrant of: “information sufficient to warrant a prudent person’s belief that evidence of a crime or contraband would be found in a search.”

When Warshak visited the Sixth Circuit back in 2007 in his civil suit, Warshak v. United States, 490 F.3d 455 (6th Cir. 2007) (now vacated) we learned the following facts:

  • The Government got court-ordered access to Warshak’s email accounts without notice to Warshak and violated both the SCA and the Court’s Order by not notifying Warshak for over a year.
  • Warshak asked the Government to provide assurances that it would not seek similar orders and the Government refused.
  • Warshak sought an injunction prohibiting such future searches.

The now-vacated opinion by the Sixth Circuit from 2007 is a really great read. That panel held that email users always have a reasonable expectation of privacy against the outside world in their email.

However, the Sixth Circuit reheard the case en banc and in a head-scratching 9-5 decision in 2008, Warshak v. United States, 532 F.3d 521 (6th Cir. 2008) (en banc), decided that Warshak’s constitutional claim was not ripe for judicial resolution. The majority wrote, “The question is whether the government will conduct another ex parte search of his emails, a possibility that is exceedingly remote, given that [there is no longer an ongoing investigation.]”

The dissent in that en banc decision was as blistering as it was eloquent:

History tells us that it is not the fact that a constitutional right is at issue that portends the outcome of a case, but rather what specific right we are talking about. If it is free speech, freedom of religion, or the right to bear arms, we are quick to strike down laws that curtail those freedoms. But if we are discussing the Fourth Amendment’s right to be free from unreasonable searches and seizures, heaven forbid that we should intrude on the government’s investigatory province and actually require it to abide by the mandates of the Bill of Rights.

I can only imagine what our founding fathers would think of this decision. If I were to tell James Otis and John Adams that a citizen’s private correspondence is now potentially subject to ex parte and unannounced searches by the government without a warrant supported by probable cause, what would they say? Probably nothing, they would be left speechless.

Warshak’s criminal case continued, and today a Sixth Circuit panel got another shot at this fact pattern in United States v. Warshak, No. 08-3997 (6th Cir. Dec. 14, 2010).

The most striking thing about this opinion is that two of the judges on this panel, Judges Boggs and McKeague, who wrote and joined today’s majority opinion respectively, were formerly part of the en banc majority that found that at that time the issue was not ripe for adjudication. Unless other votes have shifted in the interim, this suggests that, even if this case were to be reheard en banc, there are not likely to be enough votes to undo the result again. This time, email privacy may come out unscathed from the Sixth Circuit.

Today’s panel held that, “Warshak enjoyed a reasonable expectation of privacy in his emails vis-a-vis NuVox, his Internet Service Provider. See Katz v. United States, 389 U.S. 347 (1967). Thus, government agents violated his Fourth Amendment rights by compelling NuVox to turn over the emails without first obtaining a warrant based on probable cause.”

The court wrote,

[T]he very fact that information is being passed through a communications network is a paramount Fourth Amendment consideration…. Second, the Fourth Amendment must keep pace with the inexorable march of technological progress, or its guarantees will wither and perish. See Kyllo v. United States, 533 U.S. 27, 34 (2001) (noting that evolving technology must not be permitted to “erode the privacy guaranteed by the Fourth Amendment”); see also Orin S. Kerr, Applying the Fourth Amendment to the Internet: A General Approach, 62 Stan. L. Rev. 1005, 1007 (2010) (arguing that “the differences between the facts of physical space and the facts of the Internet require courts to identify new Fourth Amendment distinctions to maintain the function of Fourth Amendment rules in an online environment”).

The court continues,

If we accept that an email is analogous to a letter or a phone call, it is manifest that agents of the government cannot compel a commercial ISP to turn over the contents of an email without triggering the Fourth Amendment. An ISP is the intermediary that makes email communication possible. Emails must pass through an ISP’s servers to reach their intended recipient. Thus, the ISP is the functional equivalent of a post office or a telephone company. As we have discussed above, the police may not storm the post office and intercept a letter, and they are likewise forbidden from using the phone system to make a clandestine recording of a telephone call—unless they get a warrant, that is. See Jacobsen, 466 U.S. at 114; Katz, 389 U.S. at 353. It only stands to reason that, if government agents compel an ISP to surrender the contents of a subscriber’s emails, those agents have thereby conducted a Fourth Amendment search, which necessitates compliance with the warrant requirement absent some exception.

The court sums up this portion of the opinion with,

Accordingly, we hold that a subscriber enjoys a reasonable expectation of privacy in the contents of emails “that are stored with, or sent or received through, a commercial ISP.”… The government may not compel a commercial ISP to turn over the contents of a subscriber’s emails without first obtaining a warrant based on probable cause. Therefore, because they did not obtain a warrant, the government agents violated the Fourth Amendment when they obtained the contents of Warshak’s emails. Moreover, to the extent that the SCA purports to permit the government to obtain such emails warrantlessly, the SCA is unconstitutional.

It’s almost enough to make one believe that James Otis and John Adams got their voices back.

See also:

Categories: Fourth Amendment, Online Privacy.

Privacy Trumps Transparency in Tenth Circuit

Case and Court:

Sampson v. Buescher, No. 08-1389 (10th Cir. 2010).

In my Cyberlaw course, we discuss both the first amendment rights of anonymous speakers online as well as the menace of spam (typically sent by an anonymous speaker). In some contexts, a right to speak anonymously looks like an important democracy-supporting tool. In other contexts it looks like an unwarranted cover for all manner of mischief.

In the context of political campaign contributions, states have tended towards transparency, particularly when one considers the possibility that anonymous contributions to political candidates could have a corrupting influence and would essentially eviscerate any spending limits.

Today, in Sampson v. Buescher, the Tenth Circuit asked whether transparency regarding contributions to ballot measures was as important as transparency about contributions to candidates and decided that it was not.
Continued…

Categories: Online Anonymous Speech, Online Privacy.

KEI Letter to the EU Parliament re ACTA

Knowledge Ecology International has written an excellent letter to the European Parliament summarizing some of the remaining problems with ACTA, the so-called Anti-Counterfeiting Trade Agreement (which has sprawled into so many areas of law that it can hardly be said to primarily address counterfeiting.) There is an unfortunate rush to accept this misguided agreement, developed through obfuscatory and secret negotiations. I hope that the parties step away from this agreement and choose instead to address the issues through a truly transparent and open process.

Categories: Copyright, Copyright Limitations and Exceptions, Patent.

Seventh Circuit Affirms Dismissal of Trademark Claim Against Yahoo!

Case and Court

Stayart v. Yahoo! Inc., No. 09-3379 (7th Cir. Sep. 30, 2010).

Beverly Stayart pleads that she is “the only Beverly Stayart on the Internet.”  (Surprisingly, she appears to be right, at least for the moment.)  She commented, under her real name, on a blog.  Her blog comment, along with her name, was copied and posted on a Chinese splog promoting online pharmacies selling erectile dysfunction drugs and various sex-related websites.

So, when Stayart searched Yahoo for her name, one of the search results was the Chinese splog.  And she clicked on the link, and was sent to some unsavory corner of the internet (which, due to cloaking, did not contain the text of her blog comment at all).  However, the unsavory site did discern that she had come there from a search results page for the query “Bev Stayart,” and plastered those words on top of its unsavory content.

Understandably, seeing her name plastered atop porn and fake come-hither personal ads caused Stayart to freak out a bit.  Less understandably, it led her to file a complaint against Yahoo! for violation of the Lanham Act.  Stayart alleged that her name had commercial value and that Yahoo!, by refusing her requests to alter its search results to remove the link to the splog, had falsely implied that she endorsed certain erectile dysfunction drugs.

Yahoo! moved for judgment on the pleadings on several grounds, including that Stayart lacked standing under the Lanham Act because Stayart did not have a commercial interest in her name.  The District Court granted Yahoo’s motion, holding that the allegations in the complaint did not show that Stayart had the necessary “reasonable interest to protect” in a commercial activity.  Alleging in her complaint that “two poems written by Bev Stayart appear on two Danish websites supporting the preservation of the baby seal population in eastern Canada” was, alas, not enough.

The Seventh Circuit (Manion, J.) affirmed, holding that:

While
Stayart’s goals may be passionate and well-intentioned,
they are not commercial. And the good name that a person
garners in such altruistic feats is not what § 43 of
the Lanham Act protects: it “is a private remedy for a
commercial plaintiff who meets the burden of proving
that its commercial interests have been harmed by a
competitor.” Made in the USA Found., 365 F. 3d at 281
(quotation and brackets omitted).

While Stayart’s goals may be passionate and well-intentioned, they are not commercial. And the good name that a person garners in such altruistic feats is not what § 43 of the Lanham Act protects: it “is a private remedy for a commercial plaintiff who meets the burden of proving that its commercial interests have been harmed by a competitor.” Made in the USA Found., 365 F. 3d at 281 (quotation and brackets omitted).

Perhaps this dismissal is for the best.  Had the case progressed to discovery, Stayart may ultimately have lived to regret some of the allegations in her complaint. So, for all of those of you out there contemplating how to plead your trademark claim in federal court, you may want to leave out the allegation that “Plaintiff in no way has ever engaged in a promiscuous lifestyle, or other overt sexual activities[.]”   That sort of thing can make for a needlessly interesting deposition.

See also

Categories: Trademark.

A Music Download is not a “Public Performance”

Case and Court

United States v. ASCAP, No. 09-0539 (2d Cir. Sep. 28, 2010).

The Second Circuit Court of Appeals today affirmed the district court’s decision that a download of a digital file containing a musical work is not a “public performance” of that musical work. This is a win for Yahoo! Inc. and RealNetworks, Inc. who persuaded the court that since file downloads were not contemporaneously audibly perceptible, they were not public performances as defined in the Copyright Act.

The Court adopts and defends its interpretation of public performance from Cartoon Network LP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008), which required a performance to be created by the act of transmission, not simply a transmitting of a recording of a performance.

See also

Categories: Copyright.

Can an Academic Library use a Netflix Subscription?

Interesting article:

Travis Kaya, Academic Libraries Add Netflix Subscriptions, Chron. of Higher Ed. (Sep. 18, 2010).

The article touches on the conflict between a professor’s fair use argument for classroom use of the rented DVDs (or use of the streaming service via the library’s subscription) and the college libraries’ potential violation of Netflix’s terms of use.

I don’t know Netflix’s arrangements with copyright owners, but as to streaming, I presume they pay per stream, so the copyright owner isn’t clearly harmed if faculty use the streaming service. Instead, copyright owners are compensated.

As to the tangible DVDs, to the extent this means fewer libraries purchase the DVDs themselves, that’s a potential revenue loss for the copyright owners, but it’s not as if Netflix isn’t paying for its copies of the DVDs. So, if more libraries take this approach, Netflix will have to keep more copies of each DVD on hand, resulting in at least some (but perhaps fewer) sales of the DVDs. Whereas before there was an inefficiency of distribution at work where libraries kept on hand copies of discs they weren’t using or used infrequently, they’ve now found a distributor in Netflix who can get the disc to them quickly enough that it’s more efficient to have this subscription rather than their own under-utilized storehouse of discs.

Regardless of whether copyright owners through copyright or Netflix through contract can prevent this activity by libraries, should they be able to? Are copyright owners entitled to an inefficient distribution market?

See also:

Categories: Contract, Copyright, Copyright Limitations and Exceptions.

TM Infringement For Selling Generic Paper Towels?

Cases and Courts

Georgia-Pacific Consumer Products LP v. Myers Supply, No. 09-2980 (8th Cir. Sep. 15, 2010).
Georgia-Pacific Consumer Products, LP v. von Drehle Corp., Nos. 09-1942, 09-2054 (4th Cir. Aug. 10, 2010).

Georgia-Pacific manufactures paper-towel dispensers and disposable paper towels. It has a federal trademark, “enMotion” on its touch-less paper-towel dispenser which uses a 10-inch-wide paper-towel roll. Georgia-Pacific does not sell the enMotions, but leases them to distributors and purports to require its distributors to sell only Georgia-Pacific towels to sublessees of the enMotion dispensers.

Not surprisingly, sublessees are interested in purchasing less expensive 10-inch-wide paper towel rolls manufactured by others for use in their enMotion dispensers and some distributors are willing to sell such off-brand paper-towels to such sublessees.

Georgia-Pacific has been suing such distributors, but not merely for breach of their lease agreement. Instead they also bring claims for contributory trademark infringement, alleging that putting generic towels in the enMotion dispensers creates a likelihood of confusion as to the brand of the towels (which have no TM printed on them) and thus selling generic towels to sublessees that a distributor knows will place them in enMotion dispensers constitutes contributory trademark infringement.

Last month the Fourth Circuit said “maybe” to Georgia-Pacific’s theory and vacated the district court’s grant of summary judgment in favor of the distributor, in part because the district court limited its likelihood of confusion analysis to distributors and their customers, without analyzing the likelihood of confusion among the non-purchasing public using the dispensers and whether such confusion would adversely affect the plaintiff’s reputation among those with whom it interacts. But the court notes in footnote 6 that there remain genuine issues of material fact that will require resolution below, so it remains possible that those facts, once resolved, might not support a likelihood of confusion.

The Eighth Circuit today addressed the same issue with a different distributor and things went so poorly for Georgia-Pacific, that they might just need to throw in the towel. Here the district court had fully considered the evidence relating to confusion by bathroom consumers, distinguishing this from the Fourth Circuit case, and the district court had found no likelihood of confusion. Without direct trademark infringement by the sublessee, there could be no contributory trademark infringement by the distributor. The Eighth Circuit affirmed, putting Georgia-Pacific’s case in the waste bin.

This gives me hope for the remand to Judge Boyle in the Eastern District of North Carolina, who will hopefully reach the same result as his colleague from the Western District of Arkansas and put an end to this nonsense.

This is not a “Cyberlaw” case, but it is yet another example of what we see all too frequently in cyberlaw cases: the owner of an intellectual property right covering one thing seeks to leverage that right in an anti-competitive fashion to achieve a monopoly in a domain in which it holds no exclusive rights. Here it is trademark misuse, in other contexts, it is copyright misuse or patent misuse. What we need to see, however, is a concomitant rise in courts holding that such behavior constitutes misuse, so that these exclusive rights can properly serve the innovation-spurring and fair competition purposes they purport to serve.

Categories: Contract, Trademark.