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Crowell & Moring's Top Ten Copyright Cases of the Last Year

February 4, 2011

What are the trends that will impact copyright owners in 2011? To answer that question, we start by taking a look at what we believe are the top 10 most significant copyright cases from 2010. Understanding the drivers behind these mega cases, which include two Supreme Court decisions, will be crucial to devising your IP strategy for the coming year. Here's what you need to know:

1) Reed Elsevier, inc. v. Muchnick, 130 S. Ct. 1237 (2010). 
This is a continuation of the long-running saga known as the Tasini litigation.  Many years ago, six freelance authors sued a variety of print publishers and several online databases alleging copyright infringement.  The alleged infringement related to the inclusion of their articles in online databases, such as NEXIS.  The defendants asserted that such use was protected as a revision of a collective work.  17 U.S.C. § 201(c).  The Supreme Court ruled against the defendants.  See New York Times Co. v. Tasini, 533 U.S. 483 (2001).  A flood of copycat lawsuits followed.  In March 2005, a global settlement was reached.  The district court certified a class for settlement and approved the settlement over the objections of Mr. Muchnick.  Mr. Muchnick appealed that decision.  The Second Circuit, sua sponte, ordered briefing as to whether the federal courts have subject matter jurisdiction over the case if the class of plaintiffs included freelance authors who did not own registered copyrights.  The Second Circuit held that Section 411(a)'s registration requirement was jurisdictional and, therefore, the district court lacked subject matter jurisdiction to certify a class comprised of owners of registered and unregistered copyrights.  17 U.S.C. § 411(a).  The Supreme Court reversed.  The Supreme Court noted that Section 411(a) is not labeled jurisdictional and is separately codified from the statutory provision granting subject matter jurisdiction over copyright claims to federal courts.  See 28 U.S.C. § 1338(a).  Accordingly, Section 411(a) is a non-jurisdictional precondition to filing suit. 

2) Costco Wholesale Corp. v. Omega, S.A., No. 08-1423 (Dec. 13, 2010) (per curiam). 
This case involves the sale of "grey market" goods.  In 2004, Costco began selling Omega watches without authorization from Omega.  Costco purchased the Omega watches from authorized overseas dealers, imported them into the United States and sold the watches in their retail stores at prices that undercut Omega's authorized United States dealers.  Because the Omega watches feature a copyrighted logo, Omega sued Costco for copyright infringement.  Costco relied upon the venerable "first sale doctrine," 17 U.S.C. §109, as a defense.  In essence, Costco argued that, once it lawfully purchased a copyrighted item, it was free to dispose of it (including selling it) without limitation.  The Ninth Circuit ruled against Costco holding that the first sale doctrine only applies to copyrighted works manufactured in the United States.  The Ninth Circuit's decision was affirmed per curiam by an equally divided Supreme Court due to the fact that Justice Kagan recused herself.  Omega's victory, however, may be short-lived, given the hostility its position faced during oral argument before the Supreme Court and Justice Kagan's generally antagonistic views on anticompetitive business practices.

3) Salinger v. Colting, 607 F.3d 68 (2d Cir. 2010). 
Plaintiff J.D. Salinger was author of The Catcher in the Rye.  Defendant Fredrik Colting is the author of 60 Years Later:  Coming Through the Rye, which tells the late-life story of a 76-year old Holden Caulfield, the fictional protagonist of The Catcher in the Rye.  Colting's novel was not authorized by Salinger.  The district court granted a preliminary injunction barring release of Colting's book in the United States.  The Second Circuit reversed in light of the Supreme Court's decision in eBay Inc. v. MercExchange, 547 U.S. 388 (2006).  The Second Circuit held that its longtime standard for granting injunctive relief had been abrogated by eBay.  In particular, the Second Circuit's presumption that a copyright owner was likely to suffer irreparable harm from infringement was no longer good law.  Because eBay concerned the issuance of a permanent injunction for patent infringement, the Second Circuit went out of its way to reject any argument that eBay should be narrowly read.  Indeed, the Second Circuit expressly ruled that it applied in all cases seeking interim or permanent relief.

4) Cosmetic Ideas Inc. v. IAC/Interactive Corp., 606 F.3d 612 (9th Cir. 2010). 
Plaintiff manufactures jewelry including a piece of costume jewelry known as the "Lady Caroline Lorgnette."  Defendant owns the Home Shopping Network ("HSN").  In early 2008, HSN began selling a piece of costume jewelry similar to the "Lady Caroline Lorgnette."  Plaintiff filed an application for copyright registration on March 12, 2008.  It then filed this copyright infringement lawsuit on March 27, 2008, without yet having obtained a certificate of registration.  The district court dismissed the lawsuit for lack of subject matter jurisdiction.  The Ninth Circuit reversed.  It noted that the Supreme Court's decision in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237 (2010), held that registration is a precondition to filing a claim, but not a restriction on a district court's subject matter jurisdiction.  The question remains, however, as to whether a copyright is registered at the time of application or at the time of issuance for purposes of Section 411(a) of the Copyright Act.  The Fifth and Seventh Circuits have held that it is registered at the time of application.  The Tenth and Eleventh Circuits have held that it is registered at the time of issuance.  Although the district court here had not reached the issue, the Ninth Circuit held that it will adopt the "application approach" based upon the purposes underlying the Copyright Act's registration provisions, including a desire to eliminate unnecessary formalities.

5) FM Ins. Inc. v. Citicorp Credit Servs. Inc., 614 F.3d 335 (7th Cir. 2010). 
Plaintiff sued defendant for infringement of its copyrighted software.  Although Citicorp initially licensed the software, it discontinued the license, but allegedly induced third parties to continue using it.  The district court dismissed the suit for failure to prosecute and ordered plaintiff to pay defendant's legal fees pursuant to 17 U.S.C. § 505.  The Seventh Circuit affirmed stating that "a defendant that prevails in copyright litigation is presumptively entitled to fees under § 505."  This decision is now the second in which the Seventh Circuit has taken this position.  See Mostly Memories, Inc. v. For Your Ease Only, Inc., 526 F.3d 1093, 1099 (7th Cir. 2008).

6) Bryant v. Media Right Productions, Inc., 603 F.3d 135 (2d Cir. 2010). 
Plaintiffs own copyrights in two "albums" and the twenty songs on those albums.  They entered into a contract with defendant pursuant to which defendant would market the albums in exchange for 20% of sales.  That agreement did not authorize defendant to reproduce the albums.  Defendant subsequently arranged for the e-distribution of the songs on the albums, which necessarily required the digital reproduction of the albums.  Approximately $500 in sales were made in that manner over several years before plaintiffs learned of this.  The district court granted summary judgment to plaintiffs but only awarded plaintiffs $2,400 in statutory damages.  The district court held that the albums were compilations and, thus, only two works (not twenty works) were infringed.  In other words, the district court ignored the fact that each song on the albums was separately copyrighted.  The Second Circuit affirmed the district court decision.  The Second Circuit distinguished its prior decisions in Twin Peaks Prods. Inc. v. Publ'ns. Int'l Ltd., 996 F.2d 1366 (2d Cir. 1993) and WB Music Corp. v. RTV Comm. Group, Inc., 445 F.3d 538 (2d Cir. 2006).  In each of those cases, the copyright owner had first issued the television episodes and songs individually before putting them together in a compilation.  Therefore, the copyright owner could receive a statutory damages award for each individual episode or song.  In the present case, the copyright owners had first issued the songs in album form.  The Second Circuit expressly rejected the "independent economic value" test adopted by the 11th, 9th and D.C. Circuits.

7) Golan v. Holder, 609 F.3d 1076 (10th Cir. 2010). 
The plaintiffs are a group of conductors, educators, performers, publishers, film archivists and motion picture distributors who use public domain works.  They brought this declaratory judgment suit challenging the constitutionality of Section 514 of the Uruguay Round Agreements Act, 17 U.S.C. § §  104A, 109, which restored copyright protection to certain foreign works already in the public domain in the United States at the time it joined the Berne Convention for the Protection of Literacy and Artistic Works.  The district court granted summary judgment to plaintiffs on the grounds that the Act's restrictions on use of works previously exploited violated the First Amendment.  The Tenth Circuit reversed.  The Tenth Circuit held that Section 514 advanced important government interests – bringing the United States into compliance with international treaty obligations and obtaining copyright protection abroad for Americans – and was narrowly tailored to advance those interests.  Accordingly, under the intermediate scrutiny test appropriate for non-facial challenges to the constitutionality of a statute, Section 514 was constitutional.

8) Mattel Inc. v. MGA Entertainment Inc., 616 F.3d 904 (9th Cir. 2010). 
This case concerns the ownership of the "Bratz" line of dolls.  After a lengthy trial, a jury concluded that Mattel owned the rights to Bratz dolls because their creator developed them while employed as a designer for Mattel.  The jury, however, only awarded Mattel $10 million in damages.  After trial, the district court entered a constructive trust over the Bratz trademarks and an injunction barring the production and sale of Bratz dolls.  On appeal, the Ninth Circuit vacated the constructive trust on the grounds that the district court had refused to allow extrinsic evidence of the meaning of the employment contract at issue.  For the same reason, the Ninth Circuit reversed the finding of copyright infringement. 

9) Viacom Int'l Inc. v. YouTube Inc., 95 U.S.P.Q. 2d 1766 (S.D.N.Y. 2010). 
Plaintiff sued for copyright infringement alleging that "tens of thousands of videos" on YouTube were unlawfully copied Viacom copyrighted works.  Defendant asserted that the DMCA's "safe harbor" provision, 17 U.S.C. § 512(c), insulated it from copyright infringement.  That provision exempts a "service provider" from liability if it does not have actual knowledge of infringing works and, upon obtaining such knowledge acts expeditiously to remove the copyrighted material.  In fact, whenever YouTube received from Viacom a specific notice of an infringing work, it swiftly removed it.  Viacom argued that YouTube only "took down" the specific infringing work identified, although hundreds of other versions of the identical work were retained.  The district court rejected Viacom's argument.  Based upon a lengthy review of the legislative history of the DMCA, the district court concluded that a service provider only had to act against specifically identified infringing works.

10) Live365 Inc. v. Copyright Royalty Board, 94 U.S.P.Q.2d 1418 (D.D.C. 2010). 
Plaintiff Live365 Inc. ("Live365") is an aggregator of digital radio stations which operate under compulsory licenses and pay royalties set by the Copyright Royalty Board ("CRB").  Defendant CRB is an "institutional entity" within the Library of Congress created by the Copyright Royalty and Distribution Reform Act of 2004, 17 U.S.C. 801.  It is comprised of three judges appointed by the Librarian of Congress in consultation with the Register of Copyrights.  The CRB sets the rates that webcasters pay copyright owners.  This royalty-setting process occurs every 5 years.  Live365 was a participant in the most recent such proceeding.  Live365 brought this lawsuit seeking a declaration that the appointment process for the CRB violates the Appointments Clause of the Constitution, U.S. Const. art. II, § 2, cl. 2.  Specifically, Live365 asserted that the CRB judges had to be appointed by the President.  A month after two separate D.C. Circuit panels had declined in direct appeals of prior CRB rate decisions to decide the Appointments Clause issue because it had not been timely raised, Live365 sought a preliminary injunction to stop the next ongoing royalty-setting proceeding.  The district court denied the injunction, holding that Live365 was unlikely to succeed on the merits.  The district court held that because the CRB judges are supervised by the Register of Copyrights, they are "inferior officers" not subject to appointment by the President.  Moreover, notwithstanding the title, "Librarian of Congress," that position is actually part of the Executive Branch and, therefore, may make appointments of inferior officers within the Executive Branch.

For more information, please contact the professional(s) listed below, or your regular Crowell & Moring contact.

John I. Stewart Jr.
Retired Partner – Washington, D.C.