by Lee Gesmer | Jan 8, 2018 | Copyright
If you were asked why copyright law exists you probably would respond along the lines of “to give authors and artists a financial incentive to create new works, and to protect the integrity of their works.” It’s unlikely you would respond, “to give someone the ability to manage their online reputation and remove defamatory online reviews.”
Yet, in a bizarre case that has wound its way through the courts of Massachusetts for the last six years, that is exactly what attorney Richard Goren attempted to do. Ultimately, Goren was unsuccessful, but only after years of litigation, culminating in an appeal to the First Circuit Court of Appeals, the highest federal court in Massachusetts.
Background. I first wrote about this case in 2014, and the facts are described in detail in that post. In short, a person named Christian DuPont (about which the case record discloses little beyond his name) published two posts on RipOffReport defaming Goren. RipOff, as is its practice, refused to take down the posts, claiming protection under Section 230 of the Communications Decency Act.
That’s when Goren’s copyright workaround strategy took hold. Goren sued DuPont for defamation in Massachusetts state court. DuPont didn’t show up, so he was defaulted. Goren then asked the court to assign to him ownership of the copyright in the posts.
Copyright in hand, Goren (and an LLC he assigned the copyright to) again asked RipOff to remove the posts; RipOff again refused.
Goren – disregarding the possible Streisland Effect consequences – then sued RipOff for copyright infringement in federal court in Massachusetts.
The federal district court refused to dismiss the case in 2014, and the case ground on for another year. Ultimately, the district court decided the case in RipOff’s favor in 2015, and Goren appealed to the First Circuit, which decided the appeal in October 2017.
In the end RipOff won. The posts defaming the attorney remain on Rip Off Report to this day.
The Copyright Issue. Goren’s lawsuit asserted that he now owned the copyright in the two posts, and that RipOff was infringing that copyright by continuing to publicly display the posts without his consent.
RipOff’s defense was twofold: first, that when DuPont first published the posts he had assigned the copyrights to RipOff via RipOff’s online agreements. If that was the case the state court’s assignment to Goren was invalid, and Goren owned no copyright he could assert against RipOff.
Second, even if DuPont had not assigned the copyrights to RipOff, he had given RipOff a nonexclusive license to display the posts, and Goren owned the copyrights subject to this license.
These defenses required the court to consider two issues. First, did RipOff’s online agreement transfer ownership of the copyrights from DuPont to RipOff?
Second, if ownership was not conveyed, did the online agreement transfer a license to RipOff, allowing RipOff to continue to display the posts even after copyright ownership had been transferred to Goren?
Online “browsewrap” and “clickwrap” agreements have been the subject of a great deal of litigation, due in part to the seeming inability of online sites to follow some basic rules necessary to make them effective. (For earlier posts on this topic see Online Agreements – Easy To Get Right, Easy To Get Wrong; and Barnes & Noble’s “Browsewrap” Unenforceable)
The district court analyzed RipOff’s online agreement in this case in excruciating detail. The agreement was imperfect, but the court concluded that it was legally effective, at least as a matter of contract law. However, the court concluded that the conveyance of ownership was ineffective as a matter of copyright law. The Copyright Act requires that “[a] transfer of copyright ownership, . . . is not valid unless an instrument of conveyance, or note or memorandum of transfer, is in writing and signed by the owner of the rights conveyed ….” 17 U.S.C. § 204. DuPont never signed an instrument transferring his ownership to RipOff, and therefore RipOff did not own the copyright in the posts.
However, RipOff was still left with a perpetual, irrevocable nonexclusive license to display the posts (a limited license does not require a signed conveyance), and therefore Goren’s copyright ownership was subject to the rights granted by this license.
The First Circuit upheld the district court’s ruling that, based on this reasoning, RipOff’s continued publication of the posts was not copyright infringement.
Attorney’s Fees. The district court found that the legal and factual basis for Goren’s copyright claims were “at best questionable,” notwithstanding Goren’s claim that he had litigated in good faith. The court awarded RipOff $123,000 in attorney’s fees under the Copyright Act. An award of attorney’s fees is infrequent in copyright cases, but the Supreme Court has vested broad discretion in district courts to award attorney’s fees to prevailing parties in copyright cases (see Kirtsaeng v. Wiley, USSC 2016), and this discretion is rarely upset by appeals courts. In this case the district court did not abuse its discretion, and therefore the fee award was upheld by the First Circuit.*
*RipOff’s post-judgment motion for attorney’s fees involved some procedurally complex issues. The First Circuit decision is worth reading by lawyers who seek statutory attorney’s fees in federal court.
Takeaway. If this case strikes you as crazy complicated, you’re in good company. If nothing else, it shows how the copyright system has the potential to be manipulated for purposes other than the policies that underlie copyright law. Goren failed in this case, but only because RipOff had the foresight to create an online agreement that required posters to give it a license – but for that, Goren’s copyright claim might have succeeded. The case is a reminder of how important it is that websites ensure that their online browsewrap/clickwrap agreements are effective. And, it teaches that (at least in the First Circuit) an online agreement will not be sufficient to effect an assignment.
Many copyright lawyers who have watched this case have applauded the outcome on the ground that what Goren attempted to achieve subverted the goals of copyright law, which are to “promote the progress of science” (Constitution, Article I Section 8. Clause 8) not for reputation management. In the words of Professor Eric Goldman (below), the case exposes the “ugly interface between copyright and reputation management.”
For more on the policy perspective see Decline and Fall of the Dumb Copyright Trick, by Ron Coleman, Not What Copyright Is For, by Pamerla Chestek and First Circuit Rejects Copyright Workaround to Section 230–Small Justice v. Ripoff Report, by Eric Goldman.
Small Justice LLC v. Xcentric Ventures (1st Cir., Oct. 11, 2017).
A recording of oral argument before the First Circuit is available here.
by Lee Gesmer | Dec 16, 2017 | Trade Secrets
A recent opinion from an SDNY federal district court reminded me of a client I represented many years ago. The company insisted that the core functionalities and user interface of its software program were trade secrets. A competitor had copied these, and the client asked my firm to commence a lawsuit for misappropriation of trade secrets.
An investigation showed that the client’s software was disclosed to prospective clients in one-on-one meetings and at trade shows without any requirement that a confidentiality or nondisclosure agreement be signed. Once a customer licensed the software an NDA was part of the sale, but before then it was not.
A secondary concern was that the software was used by hundreds of employees (via a site license), but these employees were not told that the software contained trade secrets – only the manager that signed the license agreement agreed to this. Was this sufficient to protect the trade secrets in the software? I was concerned it was not.
I advised the client that we could not bring suit against the client’s competitor. The client was not pleased with this advise, but so it goes.
The court’s opinion in Broker Genius, Inc. v. Zalta reminded me of this engagement. In this case Broker was seeking a preliminary injunction against a competitor based on similar facts. Source code was not at issue – Broker claimed trade secret misappropriation only of the user interface and functionalities that would be viewed by end users of the software.
The court found that Broker did protect the confidentiality of its software before it entered into a license by limiting what prospects could see – in that respect it did a better job than my client.
However, Broker’s primary tool for protecting its trade secrets was the Terms of Use implemented via a clickwrap license. But, there were problems with this license. First, as was the case with my client:
Broker Genius licensed its software to its customers on a per company basis. Because these customers include companies with as many as 120 employees … only the person who initially sets up the corporate account on behalf of her organization is required to assent to the Terms of Use … other employees who may be more involved in everyday use of the software would not have the opportunity to individually assent and would not know what the Terms of Use were …
Second, the Terms of Use paralleled the Copyright Act, but didn’t contain a confidentiality provision. Broker’s Terms of Use stated that users of Broker’s software may not “[r]eproduce, modify, display, publicly perform, distribute or create derivative works of the Site or Apps or the Content.” This language tracks the exclusive rights language of Section 106 of the Copyright Act, but does not, as the court stated, “amount to a confidentiality or non-disclosure clause that notifies users of the secrecy of any aspect of [Broker’s software] or preclude [licensees] from describing to others the software’s functions, structure, and appearance.”
Third, the court questioned whether a clickwrap license was sufficient to protect trade secrets, although it did not base its decision on this fact.
Based on factors one and two above, the court denied Broker’s motion for a preliminary injunction.
Here are my takeaways from this case –
- Don’t disclose your trade secrets to prospective customers. Either limit what they can see, or require an NDA. (Broker actually passed this test).
- Don’t use a clickwrap agreement to impose a confidentiality requirement. Although the court did not base its decision on the fact that Broker had done this, clickwraps are suspect in the eyes of many judges, and I would not advise a client to base such an important contractual provision on a clickwrap.
- If your software is going be used by many employees under a site license, the employees need to be reminded that the software is confidential every time they access the program, or at the very least periodically. You can’t assume an employee agrees to confidentiality based on a manager’s signature on a contract.
- Make sure your contract, regardless of form (paper or clickwrap), contains an appropriate confidentiality/trade secret provision. Merely echoing the Copyright Act won’t accomplish this.
Broker Genius, Inc. v. Zalta (S.D.N.Y, December 4, 2017).
by Lee Gesmer | Nov 29, 2017 | Trials
Uber is in trouble.
The trial between Alphabet’s Waymo and Uber over Waymo’s self-driving car trade secrets was scheduled to begin on December 4th before Judge William Alsup, of Oracle v. Google fame. (Readers familiar with coverage of that case know how smart and tough he is).
According to published reports, at the last minute evidence (a letter) was discovered suggesting that Uber has a team dedicated to collecting trade secrets from competing companies. Allegedly, the people involved use disappearing-message apps, anonymous servers, and secret computers and phones to communicate without leaving a trail. The purpose was to ensure there was no paper trail that would come back to haunt the company in any criminal or civil litigation.
However, now that this has been disclosed, that strategy has backfired.
Whether this Uber team targeted Waymo is not entirely clear, but there is enough suspicion that it did for Judge Alsup to have postponed the trial so Waymo can conduct additional discovery – discovery that would have already have taken place had Uber disclosed this earlier.
All of this has Judge Alsup royally peeved. According to press reports (links below) his comments at the hearing postponing trial included the following:
- “I can no longer trust the words of the lawyers for Uber in this case. … If even half of what is in that letter is true, it would be an injustice for Waymo to go to trial”
- “You [Uber’s lawyers] should have come clean with this long ago”
- “You’re just making the impression that this is a total cover up”
- “Any company that would set up such a surreptitious system is just as suspicious as can be”
- “I have never seen a case where there were so many bad things done like Uber has done in this case”
So, Uber has a federal judge who is about to start a trial (not next week, but probably very soon), who distrusts Uber and, perhaps more importantly, its lawyers.*
*This is not the first time Judge Alsup has had problems with Uber’s lawyers. See Judge blasts Waymo v. Uber lawyers, delays trial until December (Ars Technica, Oct. 3, 2017).
This is bad news for Uber. It’s important that a trial judge trust the lawyers trying a case to tell him the truth. Trial lawyers are constantly making representations to the judge about the law and evidence, and if the lawyers representing one side of the case lose the judge’s trust, they are at a huge disadvantage. Once a judge catches a lawyer in a lie the judge will question everything the lawyer says.
While Judge Alsup must follow the rules of evidence and civil procedure in his courtroom, there are countless ways he can tilt the scales against Uber. Studies have shows that jurors believe that the judge knows what’s “really going on” in a trial, and they watch the judge closely to try to pick up on how he views the case. The judge can communicate how he feels about the case through body language, tone of voice and a thousand other subtle clues that can’t be reviewed on appeal. He can also rule against Uber on motions and procedural issues on which he has discretion, without fear of being reversed.
All of this leaves Uber at a disadvantage before the trial even begins.
Presumably, Uber’s executives and in-house counsel (and perhaps the Board of Directors) are on top of this situation and trying to figure out how to proceed. What are their choices?
- Do nothing. Uber can decide to ignore its problems with the judge and proceed to trial. If the evidence supports Uber’s position that it has not actually used any of Waymo’s trade secrets (as Uber has repeatedly stated in its public announcements on this case), perhaps it can muscle its way through the case. It will have one strike against it, but that’s not an out.
- Retain new counsel. The judge may no longer trust Uber’s lawyers, but it’s probably too late to change law firms. However, it may not be too late to bring in a new lawyer (one that Judge Alsup is known to “trust”) to help try the case. Judge Alsup has not set a new trial date, and depending on when he does, this is not out of the question. If the new trial date is far enough in the future, it may be possible to bring in a new firm to take over as lead counsel. By doing that Uber would be signaling to the judge that it recognized his problem with current counsel, and took steps to replace them. Of course, this ignores the possibility that Uber hid information from its lawyers, and that all of the fault with the newly discovered evidence lies with Uber, something Judge Alsup may already suspect.
- File a motion asking Judge Alsup to recuse himself (withdraw from the case). A recusal motion may be based on evidence that a judge is biased or lacks impartiality. That said, recusal motions are always a long shot, and I don’t think Judge Alsup’s comments have crossed the line. And, an unsuccessful motion for recusal might only backfire and make things worse for Uber. Before filing a motion to recuse Judge Alsup, Uber would do well to keep in mind Emerson’s quote that “when you strike at a king, you must kill him.”
That said, I’m pretty sure some associate at Uber’s law firm is feverishly researching Ninth Circuit recusal law today.
- Settle the case. It’s almost certain that there have been settlement discussions in this case. Given its current problems, Uber’s cost/benefit analysis of settle/litigate has changed, and Uber should consider putting more on the table. This may include more money and some form of independent monitoring process that would give Waymo assurances that Uber is not using its trade secrets. It may even go so far as to put Uber’s self-driving car project on hold for some period of time.
None of these options is likely to be appealing to Uber, but these are the choices that face a party who has (and whose attorneys have) angered or alienated a judge. Uber is in a tough spot. How it will extricate itself – or whether it even can – remains to be seen.
See: Rebuking Uber Lawyers, Judge Delays Trade Secrets Trial (NYT, Nov. 28, 2017); Uber trial delayed after new evidence emerges (CNN, Nov. 28, 2017); Judge Tells Uber Lawyer: ‘It Looks Like You Covered This Up’ (NYT, Nov. 29, 2017).
Update: The case settled.
by Lee Gesmer | Nov 24, 2017 | Contracts
The first time I heard of a “buy/sell agreement” was around 1970 when I was 19 – just a few years before I fell in love with Steely Dan’s music.
Back then my father owned a textile business in Haverhill, Massachusetts with a 50-50 “partner,” and he explained that the business had insurance policies on both of their lives. If either partner died, the insurance would fund the purchase of the deceased partner’s shares, and the surviving partner would end up owning 100% of the company.
This, he explained was a “buy/sell agreement” – the deceased partner’s estate was bound to sell, and the surviving partner’s estate was bound to buy.
Fortunately, neither my father or or his partner ever had to exercise rights under this agreement – my father retired in 1981, and sold his half of the business to his partner.
It turns out that at around the same time that I first heard of a buy/sell agreement Donald Fagan and Walter Becker, the creative geniuses behind Steely Dan, were doing something similar.
In 1972 Fagan, Becker and several other band members, entered into a buy/sell agreement providing that upon the death of any owner of shares in Steely Dan, Inc., the company would buy back that member’s shares. A classic, simple buy/sell agreement that my father would have recognized. The most significant difference is that Steely Dan didn’t fund the purchase of the deceased member’s shares with insurance – instead the shares would be purchased based on the “book value” of the company, which would be determined by the company’s accountants.
According to Fagen this agreement has remained in effect and unaltered for 45 years, and by 2017 Fagen and Becker were the only two remaining shareholders in Steely Dan. If true, when Walter Becker died in October 2017 his heirs became obligated to sell Becker’s shares back to Steely Dan, leaving Fagen the sole owner of Steely Dan, Inc.
However, according to a lawsuit filed by Fagen this month (November 2017), Becker’s heirs have refused to honor the buy/sell agreement, claiming it is no longer in effect. Fagen’s lawsuit attempts to force them to sell Becker’s shares back to Steely Dan.
What to make of all of this?
Forty-five years is a long time, and perhaps Becker’s estate has some basis for claiming that the buy/sell agreement was terminated or superseded. At this point we don’t know their side of the story. But given the existence of this agreement (which is not notarized but appears authentic), Becker’s estate faces an uphill fight.
If the agreement is enforceable, what can Becker’s estate expect to receive for Becker’s shares in Steely Dan, Inc.? Book value is simply assets minus liabilities, and Fagan’s complaint doesn’t disclose what Steely Dan’s assets and liabilities are. However, it’s worth noting that the agreement excludes from book value the “good will” of Steely Dan, which if included would have complicated and increased the determination of book value – the monetary value of “good will” can be difficult to establish, and by excluding this the members of Steely Dan likely were trying to keep things simple.
The agreement also doesn’t make any reference to who owns the most valuable assets associated with Steely Dan – the copyrights in the band’s compositions and the band’s recording contracts. It seems likely that revenues from these sources go directly to Becker and Fagen as composers and performers, but at this point we don’t know. If this is in fact the case, the only assets in Steely Dan, Inc. may be the name of the band (and therefore the right to perform in concert under the name), the domain name “steelydan.com” (which is referenced as an asset in the complaint) and the right to make commercial use of the “Steely Dan” trademark.
Most likely this case will settle out of court. If it doesn’t, we may learn more about the legal and business relationship between these musicians.
Fagen v. Estate of Walter Becker (buy/sell attached)
Update: Becker family response
by Lee Gesmer | Jul 21, 2017 | Internet Law
“One country shouldn’t be able to decide what information people in other countries can access online”
David Price, senior product counsel at Google
A risk long anticipated by Internet law observers is that the courts might become more aggressive in regulating online behavior, not just in their own nation, but worldwide. Google, more than any company, has had a target on its back for this kind of case.
The obvious example would be a court in one nation ordering Google to takedown (“de-index”) search results for users worldwide. This is exactly what happened in the Canadian Supreme Court’s decision in Google Inc. v. Equustek Solutions Inc. (June 28, 2017). This case represents the first time the highest court in a country has ordered a search engine to de-index worldwide in the context of a purely commercial two-party dispute. And, as we shall see below, this is a crucial issue for Google – one that it will not concede without a fight.
The facts of the Canadian case are straightforward. Equustek, a Canadian company, sued its former distributor, Datalink, on various grounds, including trade secret misappropriation. Datalink moved its offices and web host outside of Canada, but continued to sell its product online. A court order directed at Datalink was ineffective, so Equustek turned to Google, demanding that it remove links to Datalink from Google’s search engine. Google was prepared to comply in Canada, but Equuestek insisted that Google de-link Datalink worldwide.
After a series of lower-court decisions granted Equustek’s demand for worldwide de-indexing of Datalink sites Google appealed the case to the Supreme Court of Canada.
The Supreme Court upheld the lower Canadian court. It rejected Google’s argument that the Canadian courts did not have the legal authority to issue a worldwide takedown injunction. Noting that Datalink would not be commercially viable without Google’s search results, the court found that Google was “facilitating Datalink’s breach … by enabling it to continue carrying on business through the Internet.” Since the Internet has “no borders,” only a worldwide injunction would be effective to protect the Canadian company.
Google argued that a worldwide takedown order could run afoul of laws in other jurisdictions, but the court held that Google could seek modification of the order should that prove to be the case: “we are dealing with the Internet after all, and the balance of convenience test has to take full account of its inevitable extraterritorial reach when injunctive relief is being sought against an entity like Google.”
While Google has no further appeals in Canada, it’s seeking a partial reprieve in the United States. On July 24, 2017, a month following the decision in Canada, Google filed suit against Equustek (the plaintiff in the Canadian case), asking a California federal district court to:
Declare that the Canadian Order is unenforceable in the United States as inconsistent with the First Amendment, the Communications Decency Act, and the public policy surrounding enforceability of foreign judgments pursuant to international comity.
Google opened its complaint as follows:
Google brings this action to prevent enforcement in the United States of a Canadian order that prohibits Google from publishing within the United States search result information about the contents of the internet. As part of a Canadian lawsuit brought by Canadian plaintiffs against Canadian defendants, a Canadian trial court enjoined Google (a non-party based in California) from including in its search results links to dozens of the Canadian defendants’ websites—not just on Google’s www.google.ca site for Canada, but worldwide, including within the United States. As a result, Google, alone among search engines and other providers of interactive computer services, is compelled to censor the information it provides to its users around the globe about the existence of the Canadian defendants’ websites.
How Google’s U.S. case will proceed raises some interesting and potentially important issues, including the following:
- Google’s complaint is based on three legal grounds: that the Canadian ruling violates the First Amendment, the Communications Decency Act* and U.S. public policy. Each of these contentions is likely to implicate complex legal arguments. The last issue raises difficult issues of international comity – in this case the willingness of a U.S. court to override a court decision from another jurisdiction affecting a U.S. corporation.
*The Communications Decency Act states that: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” 47 U.S.C. § 230(c)(1). Likely, under this U.S. statute Google could not be forced to de-index search engine links to Datalink’s web pages.
- Even if the U.S. court does override the Canadian case in the U.S. and Google restores links to Datalink’s web pages in the U.S., Google would still be in violation of the injunction in Canada. Will Google petition the Canadian courts to modify the Canadian order to permit re-indexing in the U.S., and how would a Canadian court respond to such a petition?
- At a practical level, who will defend this suit, which could easily go to the Ninth Circuit, and perhaps the Supreme Court? Equustek, not the Canadian government, is the defendant, and it may not even have the financial resources to defend this case in the U.S. If it doesn’t, who will?
- Again, as a practical matter, what if Datalink (the original bad actor) goes out of business or removes the offending pages while the case is pending? Will the U.S. case be moot, leaving the Canadian decision standing as a potentially important precedent?
While the presence or absence of links to Datalink is of no financial significance to Google, Google v. Equustek represents an existential threat to the Internet that Google takes seriously – the Balkanization of the Internet. Countries with different views of permissible online speech could lead to an Internet where what you see in one country (such as the U.S.) may be different from what you see in another (such as Canada).
The risk that worldwide takedowns will be the future of the Internet is very real, and Google appears to be committed to preventing, or at the least minimizing, this outcome by challenging it, as it did in Canada. If it can’t achieve that, as it could not do in Canada, it will accept Balkanization as a second choice, as it is now seeking to do through its U.S. suit.
For readers who may be interested in the legal theories Google is advancing in the U.S. suit, I recommend the Electronic Frontier Foundation’s amicus brief in the Canadian case, which is available here.
Update 1: Google has filed a motion for a preliminary injunction prohibiting enforcement of the delisting order in the U.S. Link here
Update 2: on November 2, 2017, the federal district court for the district of Northern California enjoined enforcement of the Canadian order in the U.S. on the grounds that it was inconsistent with the Communications Decency Act.
The court’s opinion is available here. As I suggested might be the case, Equustek did not enter an appearance in the case to oppose the lawsuit.
Update 3: On December 14, 2017 the court entered a default judgment and permanent injunctive relief (here).
