TLJ News from January 1-5, 2008

Supreme Court Grants Certiorari in Case Regarding Private Rights of Action Under Communications Act

1/4. The Supreme Court granted certiorari in Sprint Communications v. APCC Services, a case regarding private rights of action under the Communications Act for violation of FCC rules -- in this case, payphone compensation rules. See, Orders List [4 pages in PDF] at page 2-3. See, full story.

5th Circuit Denies Attorneys Fees to Prevailing Defendant in P2P Music Case

1/4. The U.S. Court of Appeals (5thCir) issued its opinion [5 pages in PDF] in Virgin Records v. Cliff Thompson, affirming the judgment of the District Court, which denied attorneys fees to the prevailing defendant in an improvidently filed peer to peer music copyright infringement action.

Background. The plaintiffs, Virgin Records, Sony BMG Music Entertainment, Arista Records, and UMG Recordings, are record companies. The copyrights of these and other record companies are infringed by users of peer to peer systems who download or upload copyrighted songs without authorization.

The Office of the U.S. Trade Representative (OUSTR) wrote in its report [52 pages in PDF] titled "2007 Special 301 Report" that "The increased availability of broadband Internet connections around the world has made the Internet an extremely efficient vehicle for disseminating pirated products." It added that the "copyright industries report growing problems with piracy not only on the Internet, but also using cellular telephones, palm devices, flash drives, and other mobile technologies."

Stephen Siwek estimated in an August 21, 2007, report [28 pages in PDF] titled "The True Cost of Sound Recording Piracy to the U.S. Economy" that total annual worldwide losses to all types of piracy by U.S. record and related companies is $4.068 Billion. Siwek further wrote that "As a consequence of global and U.S.-based piracy of sound recordings, the U.S. economy loses $12.5 billion in total output annually."

See also, International Intellectual Property Alliance (IIPA) release that estimates that total losses due to copyright piracy in the record and music industry outside of the U.S. in 2006 was $2.25 Billion.

One anti-piracy strategy of U.S. record companies is to sue persons who upload copyrighted songs via peer to peer networks. The present action is one such suit. The Recording Industry Association of America (RIAA) stated that "Since the onset of our lawsuits in 2003, we have brought some 28,000 legal actions against individuals."

In the present case, the record companies filed a complaint in U.S. District Court (WDTex) against Cliff Thompson. The record companies then moved to dismiss. The District Court dismissed the complaint. Thus, Cliff Thompson is the prevailing party. Thompson moved for an award of attorneys fees. The District Court denied Thompson's motion.

The opinion states that the record companies moved to dismiss following Cliff Thompson's assertion that any infringement would have been done by his adult daughter.

The record companies filed a second complaint against Brigette Thompson, and obtained a default judgment against her, although the opinion does not relate this.

The plaintiff record companies were on notice at the time of filing the complaint against Cliff Thompson that they were suing the wrong person. They sued a "Cliff Thompson", a name usually used by a man. In contrast, their information was that the infringer went by the online name of "gigette", which is neither a variation of Cliff or Thompson, nor a name usually used by a man. The "ette" ending to a name connotes feminine and/or diminutive attributes.

Thompson brought the present appeal of the District Court's denial of attorney's fees. The underlying dismissal of the complaint against him is not at issue.

Is This Case Significant? This case involves no substantive issues of copyright law. It only goes to attorneys fees. Moreover, the District Court proceeding was brief, and the defendant's attorneys fees would likely have been modest. (The opinion does not disclose the amount of the request.) If this case does have significance to other litigants, and litigants in non-copyright cases, the reasons might be as follows.

Online transactions are inherently conducted with varying degrees of anonymity. The identity of the ownership of a computer, a cell phone, an internet account, or a wireless account is not necessarily the same thing as the identity of the user of that device or account for any particular transaction. Devices and accounts are used by persons other than their owners, sometimes without the owner's knowledge. Identities are stolen, and used to purchase computers and to open accounts. Computers and accounts are surreptitiously taken over by hackers, spammers, botnet herders, and others.

Criminal and/or civil liability attaches to various actions involving the use of devices and accounts. These include not only peer to peer music infringement, but also violations of the Computer Fraud and Abuse Act (CFAA), the CAN-SPAM Act, other federal statutes, as well as contract and tort claims.

(The CAN-SPAM Act, Public Law No. 108-187, creates a private right of action for ISPs, and provides that "the court may" award attorneys fees "against any party". The CFAA, at 18 U.S.C. § 1030(g), creates a general private right of action.)

Different statutes and principles regarding the award of attorneys fees apply in different types of cases. Nevertheless, litigants and courts might cite the present opinion, or similar opinions, as authority for the proposition that when complaints are filed against the wrong person, based upon their ownership of a device or internet account used in actionable conduct, these complaints can be dismissed without an award of attorneys fees to the prevailing defendant.

Moreover, since copyright litigation is often inherently factual dense, procedurally complex, and within the exclusive jurisdiction of the federal courts, actual attorneys fees can easily run into the hundreds of thousands of dollars. Actual attorneys fees often exceed actual damages. Hence, the issue of whether or not actual attorneys fees are awarded takes on greater importance in copyright litigation than in many other types of litigation.

Furthermore, peer to peer music infringement cases are brought almost exclusively against individuals, many of whom are of modest means. Other incorrectly named defendants in cases involving use of devices or accounts are also likely to be ordinary individuals. Some will not be able to retain counsel, and will therefore settle and pay damages for claims for which they are not liable, or allow a default judgment to be taken against them. Denying the recovery of attorneys fees to incorrectly named defendants will increase the likelihood that they will not be able to retain counsel, and thereby increase the number of persons whose finances and reputations are harmed by judicial process in the absence of any liability or wrongful conduct. The law sometimes abhors such outcomes.

Statute and Precedent. The Copyright Act, at 17 U.S.C. § 505, provides that "In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney's fee to the prevailing party as part of the costs."

Notably, the award of attorneys fees is not mandatory. The statute uses the word "may" rather than "shall".

This, combined with various courts' application of this section, has resulted in uncertainty regarding whether or not attorneys fees will be awarded.

The leading Supreme Court precedent is Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994). The Supreme Court held that under Section 505, "Prevailing plaintiffs and prevailing defendants are to be treated alike, but attorney's fees are to be awarded to prevailing parties only as a matter of the court's discretion."

One of the leading 5th Circuit cases is Hogan Sys., Inc. v. Cybresource Int’l, Inc., 158 F.3d 319, which held that "the award of attorneys' fees in copyright cases is the rule rather than the exception, and should be awarded routinely".

Another pertinent 5th Circuit case is Ergonome v. Compaq Computer (2004). In that case Compaq copied, for commercial purposes, from a copyrighted work, without authorization. The plaintiffs filed the complaint against the correct defendant. The defendant had engaged in unauthorized copying. However, the defendants escaped liability on a fair use defense. The District Court awarded Compaq $2,765,026.90 attorneys fees. The Court of Appeals affirmed. The award drove the plaintiffs into bankruptcy.

See also, stories titled "5th Circuit Rules on Copyright, Fair Use, Attorneys Fees, and Alter Egos" in TLJ Daily E-Mail Alert No. 991, October 6, 2004, and "Supreme Court Denies Certiorari in Copyright Fair Use and Attorneys Fees Case" in TLJ Daily E-Mail Alert No. 1,109, April 5, 2005.

Court of Appeals. In the present case the Court of Appeals affirmed the judgment of the District Court.

It departed from its strict preference for awarding attorneys fees evidenced by its opinions in Hogan and Ergonome. It wrote that the "recovery of attorney’s fees is not automatic"

The Court of Appeals analysis consists largely of quoting with approval the opinion of the District Court. First, it wrote that the District Court "determined that Plaintiffs’ lawsuit was not frivolous or objectively unreasonable, citing several reasons for this conclusion. The court found that ``Plaintiffs discovered substantial copyright infringement of their songs by a file-sharing program attached to an internet [sic] account registered to Thompson.´´ The court also found that the Plaintiffs attempted to contact Thompson to resolve this matter for six months prior to filing this lawsuit." (Internal quotations and brackets in Court of Appeals opinionl.)

Second, it wrote that the District Court "concluded that Plaintiffs’ ``motivation in bringing the suit was proper.´´ The court found no indication that Plaintiffs ``prosecuted this suit with malevolent intent.´´ Instead, the court determined that Plaintiffs acted properly to protect their copyrights after they discovered copyright infringement of their songs. The court also found that Plaintiffs ``immediately moved to dismiss´´ their suit against Thompson after they identified the adult daughter that Thompson acknowledged might be responsible for the copyright infringement."

Third, it wrote that the District Court "concluded that awarding Thompson attorney’s fees would not advance considerations of compensation and deterrence. These Plaintiffs should not be deterred from bringing future suits to protect their copyrights because they brought an objectively reasonable suit. Thompson, however, ``delayed the prompt resolution´´ of this litigation by failing to respond to Plaintiffs’ pre-suit communications and to disclose the identify of the true copyright infringer."

The Court of Appeals relied upon Section 505, Fogerty, and Hogan. It did not site Ergonome. It should also be noted that the Court of Appeals did not site any other rules that might give rise to a duty to negotiate or communicate in copyright actions prior to the filing of the complaint. For example, the opinion does not discuss any applicable code of professional responsibility. The opinion does not state that either Thompson or whoever wrote to him are licensed by any state bar association. Nor does the opinion discuss any applicable provisions of the local rules of any district court.

The denial of attorneys fess by the District Court and Court of Appeals in this case resembles discovery sanctions. Thompson was denied attorneys fees for failure to respond to discovery requests. However, pre-litigation letters are not discovery requests within the meaning of the FRCP.

Moreover, there are numerous legal procedures for conducting discovery available to record companies in various situations. They could have filed a copyright infringement action against a John Doe defendant, alleging infringement, and that the identity of the infringer was unknown, and then proceeded with discovery, pursuant to the FRCP, from witnesses. They could have conducted an oral deposition of Cliff Thompson, and asked him his knowledge of the identity of the infringer. They could have proceeded in this John Doe action to obtain records from service providers pursuant to a Rule 45 subpoena. Under some circumstances, record companies can avail themselves of the discovery procedure allowed by 17 U.S.C. § 512(h).

Finally, perhaps it should be noted that the Court of Appeals issued a per curiam opinion of a three judge panel comprised of Edith Jones, Jacques Wiener and Edith Clement. Judge Jones also wrote the opinion of the Court of Appeals in Ergonome. It may be difficult to reconcile her two opinions.

This case is Virgin Records, et al. v. Cliff Thompson, U.S. Court of Appeals for the 5th Circuit, App. Ct. No. 07-50067, an appeal from the U.S. District Court for the Western District of Texas, D.C. No. 5:06-CV-592.

DOJ Prosecutes Operators of Pump and Dump Securities Scheme Under CAN-SPAM and CFAA

1/3. The U.S. District Court (EDMich) unsealed an indictment that charges Alan M. Ralsky and ten other persons with violation of criminal prohibitions of the federal CAN SPAM Act (18 U.S.C. § 1037), violation of the federal Computer Fraud and Abuse Act (CFAA) (18 U.S.C. § 1030), and other federal crimes, but not any federal securities laws, in connection with the operation of a pump and dump securities fraud operation. See, full story.

James Assey Joins NCTA

1/3. James Assey joined the National Cable and Telecommunications Association (NCTA) as Executive Vice President. He was previously Senior Democratic Counsel to the Senate Commerce Committee (SCC).

Kyle McSlarrow remains the head of the NCTA. The NCTA stated in a release that Assey will be the "NCTA's second most senior executive".

Assey replaces David Krone, who recently joined Comcast as SVP of Corporate Affairs.

Before becoming Senior Democratic Counsel to the SCC, Assey was Telecommunications Counsel for former Sen. Ernest Hollings (D-SC), who was either the SCC Chairman, or ranking Democrat, depending on which party was in the majority at the time.

Before that, Assey worked for the law firm of Willkie Farr & Gallagher. He is also an adjunct faculty member at Georgetown University's law school, where he teaches a course titled "Communications Law: Law, Policy, and Politics in the Internet Age". See also, Georgetown bio.

People and Appointments

1/3. Attorney General Michael Mukasey appointed four new members, and reappointed four current members, to his Attorney General's Advisory Committee of United States Attorneys. See, Department of Justice (DOJ) release.

1/3. Former Rep. Nancy Johnson (R-CT) was named Co-Chair of the Information Technology and Innovation Foundation Board. She replaces former Rep. Jennifer Dunn (R-WA), who died last year. The other Co-Chair remains former Rep. Cal Dooley (D-CA). Johnson and Dunn were both members of the House Ways and Means Committee.

More News

1/3. The Federal Communications Commission (FCC) announced the deadlines for comments in response to its notice of proposed rulemaking regarding the establishment of a Commercial Mobile Alert System (CMAS). This NPRM, which was adopted and released on December 14, 2007, is FCC 07-214 in PSHSB Docket No. 07-287. See, notice in the Federal Register, January 3, 2008, Vol. 73, No. 2, at Pages 545-607. The relevant FCC proceeding is numbered CG Docket No. 03-123. Initial comments are due by February 4, 2008. Reply comments are due by February 19, 2008.

1/3. The U.S. Court of Appeals (6thCir) issued its opinion [4 pages in PDF] in Gruener v. Ohio Casualty Insurance Company, an Americans with Disabilities Act (ADA) case involving an employee, Sharyn Gruener, who worked as a PC/LAN administrator. She had degenerative joint disease (DJD) in her knees and other weight bearing joints, and had knee replacement surgery. She could not then squat, crawl, kneel, or lift computer equipment. Her employer, Ohio Casualty Insurance Company, terminated her. She filed a complaint in U.S. District Court (SDOhio) alleging violation of the ADA. Ohio Casualty prevailed in the District Court, and the Court of Appeals affirmed. This case is Sharyn Gruener v. Ohio Casualty Insurance Company, U.S. Court of Appeals for the 6th Circuit, App. Ct. No. 05-4220.

9th Circuit Rules in Karaoke Copyright Case

1/2. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Leadsinger v. BMG Music Publishing, a declaratory judgment action regarding the application of copyright law to karaoke music products. The Court of Appeals affirmed the judgment of the District Court in favor of the music publishers.

Background. Leadsinger is a karaoke device manufacturer. BMG Music Publishing and the other defendants are music publishers.

Leadsinger's product is a microphone that plugs into a television. There is also a microchip inside the microphone that stores recordings of songs. The Court of Appeals wrote that "When the microphone is plugged into a television, the lyrics of the song appear on the television screen in real time as the song is playing, enabling the consumer to sing along with the lyrics."

Other karaoke products employ different technologies, such as putting the recorded songs on cassette tapes, CDs, or DVDs, or retrieving them via internet connection. Karaoke products remove or reduce, or attempt to remove or reduce, the voice component of the recording, and then display the lyrics via a television or other video display, thereby enabling the consumers or users of the product to sing along.

Leadsinger's product also includes some printed lyrics to accompany recorded songs stored in the microphone' chip. Its product also stores and displays some copyrighted photographs.

Leadsinger obtained compulsory mechanical licenses to copyrighted musical compositions.

BMG demanded that Leadsinger and other karaoke product providers pay a lyric reprint fee and a synchronization fee. Leadsinger refused. Instead, it initiated the present litigation.

District Court. Leadsinger filed a complaint in U.S. District Court (CDCal) against BMG and the other defendants seeking a declaration that it is entitled to print or display song lyrics in real time with song recordings as long as it obtains a compulsory mechanical license under 17 U.S.C. § 115, or in the alternative, that it is entitled to do so under the fair use doctrine, which is codified at 17 U.S.C. § 107.

The District Court held, in an opinion reported at 429 F. Supp. 2d 1190, that a Section 115 compulsory license does not grant Leadsinger the right to display visual images and lyrics in real time with music, and that the allegations in Leadsinger's complaint do not support its fair use claim.

The District Court disposed of this case on a motion to dismiss. Hence, it ruled based solely on the allegations contained in Leadsinger's complaint, taking all allegations as true. This is an atypical way to dispose of fair use claims, which typically are fact intensive.

Statutes. 15 U.S.C. § 102 provides that the subject matter of copyright extends to, among other things, "musical works, including any accompanying words", "sound recordings", and "literary works".

15 U.S.C. § 106 provides that "the owner of copyright under this title has the exclusive rights to do and to authorize any of the following: (1) to reproduce the copyrighted work in copies or phonorecords; ... (3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending".

17 U.S.C. § 115 provides for compulsory licensing of phonerecords. It states that "the exclusive rights provided by clauses (1) and (3) of section 106, to make and to distribute phonorecords of such works, are subject to compulsory licensing", and then sets out the compulsory licensing scheme.

17 U.S.C. § 101, the definitional section of the Copyright Act, defines "phonorecord" as "material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by any method now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. ..."

Section 101 defines "sound recordings" as "works that result from the fixation of a series of musical, spoken, or other sounds, but not including the sounds accompanying a motion picture or other audiovisual work, regardless of the nature of the material objects, such as disks, tapes, or other phonorecords, in which they are embodied."

Section 101 defines "audiovisual works" as "works that consist of a series of related images which are intrinsically intended to be shown by the use of machines, or devices such as projectors, viewers, or electronic equipment, together with accompanying sounds, if any, regardless of the nature of the material objects, such as films or tapes, in which the works are embodied."

Section 101 defines "literary works" as "works, other than audiovisual works, expressed in words, numbers, or other verbal or numerical symbols or indicia, regardless of the nature of the material objects, such as books, periodicals, manuscripts, phonorecords, film, tapes, disks, or cards, in which they are embodied." (Song lyrics are recognized as "literary works" within the meaning of the Copyright Act.)

There is no right titled "synchronization right" in the Copyright Act. Nor does the Copyright Act define the term "synchronization".

Court of Appeals: Section 115. Leadsinger brought the present appeal. The Court of Appeals affirmed in a unanimous opinion.

Leadsinger has only compulsory mechanical licenses obtained pursuant to Section 115. It asserted that this is sufficient to make and sell its product. The Court of Appeals reasoned that Section 115 mechanical licenses cover only "phonorecords". But, Section 101 defines phonorecords as "material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed ..." It wrote that "audiovisual works are not phonorecords and are excluded from § 115's compulsory licensing scheme." And, since Leadsinger's product is an "audiovisual work", it cannot be a "phonorecord", and thus its Section 115 argument fails.

The Court of Appeals elaborated on its conclusion that Leadsinger makes an "audiovisual work" within the meaning of the Copyright Act. It explained that Leadsinger's product's "visual representation of successive portions of song lyrics" fits the statute's definition of a "series of related images which are intrinsically intended to be shown by the use of machines".

The Court of Appeals added that "The fact that the related images are comprised of song lyrics, which constitute a literary work, does not preclude us from concluding that Leadsinger's device is an audiovisual work."

Leadsinger also provides customers with some printed song lyrics. The Court of Appeals concluded that Leadsinger "is not entitled to a declaration that compulsory mechanical licenses under § 115 allow it to reprint lyrics in booklets that accompany its karaoke products". It reasoned that the lyrics are also literary works subject to copyright protection. Section 115 is an exception to the exclusive rights of copyright for phonorecords only. It wrote that "the reproduction of song lyrics on paper is not within the scope of § 115."

The Court of Appeals also noted, with little discussion, that "Though it is not explicit in the Copyright Act, courts have recognized a copyright holder's right to control the synchronization of musical compositions with the content of audiovisual works and have required parties to obtain synchronization licenses from copyright holders."

It summed up its holding regarding Leadsinger's Section 115 argument. "We hold that Leadsinger's device falls within the definition of an audiovisual work. As a result, in addition to any § 115 compulsory licenses necessary to make and distribute phonorecords and reprint licenses necessary to reprint song lyrics, Leadsinger is also required to secure synchronization licenses to display images of song lyrics in timed relation with recorded music."

Court of Appeals: Fair Use. The Court of Appeals next rejected Leadsinger's fair use argument.

The Court of Appeals applied the four part test of Section 107. First, it concluded that the first prong ("the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes") supports BMG because Leadsinger's complaint supports "only a commercial use" and "does not allege that Leadsinger's use of copyrighted lyrics is transformative".

Second, the Court of Appeals found that the second prong ("the nature of the copyrighted work") supports BMG. It wrote that "Original song lyrics are a work of creative expression, as opposed to an informational work, which is precisely the sort of expression that the copyright law aims to protect."

Third, the Court of Appeals found that the third prong ("the amount and substantiality of the portion used in relation to the copyrighted work as a whole") weighs in BMG's favor because Leadsinger uses the entirety of the copyrighted lyrics.

Fourth, the Court of Appeals wrote with respect to the fourth prong ("the effect of the use upon the potential market for or value of the copyrighted work") that the complaint is lacking. It wrote that "In arguing that its use will not affect the potential market, Leadsinger contends that there is no market for song lyrics standing alone. Leadsinger failed to allege this in its complaint and we are not willing to assume that there is no such market."

The Court of Appeals then concluded that "The showing on all other factors under § 107 is strong: the purpose and character of Leadsinger’s use is commercial; song lyrics fall within the core of copyright protection; and Leadsinger uses song lyrics in their entirety. On this basis, we affirm the district court’s dismissal of Leadsinger’s request for a declaration based on the fair use doctrine."

Other Karaoke Copyright Cases. The U.S. Court of Appeals (6thCir) issued its opinion [12 pages in PDF] in Zomba v. Panorama Records. on June 26, 2007, affirming the judgment of copyright infringement against a maker of karaoke CDs. That opinion is also reported at 491 F.3d 574.

See, also, ABKCO Music, Inc. v. Stellar Records, Inc., 96 F.3d 60 (2d Cir. 1996).

The present case is Leadsinger, Inc. v. BMG Music Publishing, et al., U.S. Court of Appeals for the 9th Circuit, App. Ct. No. 06-55102, an appeal from the U.S. District Court for the Central District of California, D.C. No. CV-04-08099-VAP, Judge Virginia Phillips presiding. Judge Milan Smith wrote the opinion of the Court of Appeals, in which Judges Diarmuid O'Scannlain and Michael Mosman joined.

People and Appointments

1/2. Rep. Tom Lantos (D-CA) announced that he will not seek re-election. See, release. He is the Chairman of the House Foreign Affairs Committee. He is also a cosponsor and leading proponent of HR 275 [LOC | WW], the "Global Online Freedom Act of 2007". See, story titled "House Committee Approves Global Online Freedom Act" in TLJ Daily E-Mail Alert No. 1,662, October 25, 2007, and story titled "House Committee Grills Yahoo Executives" in TLJ Daily E-Mail Alert No. 1,671, November 7, 2007.

More News

1/2. The Department of Commerce's (DOC) Bureau of Industry and Security (BIS) published a notice in the Federal Register that announces, describes, recites, and sets the effective date (January 2, 2008) for, various changes to its Export Administration Regulations (EAR). See, Federal Register, January 2, 2008, Vol. 73, No. 1, at Pages 32-38.

1/2. The Office of the Director of National Intelligence (ODNI) published a notice in the Federal Register that announces a notice of proposed rulemaking regarding ODNI policies for collecting and maintaining personally identifiable records and processes for administering requests for records under the Privacy Act of 1974, which is codified at 5 U.S.C. § 552a(b). See, Federal Register, January 2, 2008, Vol. 73, No. 1, at Pages 113-125. These proposed rules allow for the disclosure of information to courts, government agencies, Congress, any Congressional committee or subcommittee, and a consumer reporting agency (in accordance with 31 U.S.C. § 3711(e)). These proposed rules also enumerate numerous exemptions of records systems under the Privacy Act. The deadline to submit comments is February 11, 2008.

1/2. The National Telecommunications and Information Administration's (NTIA) Commerce Spectrum Management Advisory Committee announced that it will meet in Boulder, Colorado, on Friday, February 8, 2008. See, NTIA notice and notice in the Federal Register, January 2, 2008, Vol. 73, No. 1, at Pages 170-171.

Go to News from December 26-31, 2007.