Volume V, Issue 3: February 8, 2007
Canadian Tax Authorities to Use Software to Catch Online Tax Evaders
U.S. Court of Appeals Rejects Bid to Overturn Copyright Extensions for "Orphaned" Works
WTO Finds U.S. Non-Compliant with its Internet Gambling Decision
Italian Court Decriminalizes Not-for-Profit Downloading
U.S. Courts Frequently Cite Wikipedia
eBay Bans Auctions of Virtual Goods
U.S. First Sale Doctrine Applies to Audiobooks
New Jersey Appeals Court Strengthens Privacy Rights of Internet Users
Political Attack TV Ads Potentially Breach Copyright Act
Federal Court Awards Maximum Statutory Damages for Copyright Infringements
Patents for Dynamic Web Pages Undergo Re-examination
Israeli Court Rules Operation of Foreign Gambling Website a Criminal Offence Under Israeli Law
Canadian Tax Authorities to Use Software to Catch Online Tax Evaders
The Canada Revenue Agency (“CRA”) has recently been testing new software that is designed to spot Internet businesses operating in Canada, but who are failing to pay their taxes. The software is called Xenon. Xenon’s immediate attention will be directed towards online gambling, shopping, and auction websites. The CRA’s position on the matter is simple, “There is no difference between a business on the Internet...or a business down the street...they are all businesses, and they all have to pay their taxes.”
More specifically, Xenon uses a “Web identification tool” in order to determine a website’s probable owner, and this data is cross–referenced with tax records, and national databases. As such, it is unclear if the data Xenon provides is evidence of tax evasion, or simply raises red flags, which subsequently prompt a CRA investigation. However, if Xenon goes beyond finding public information one could easily find on various search engines, privacy concerns could potentially become an issue.
For additional information, visit:
http://www.thestar.com/article/175853
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U.S. Court of Appeals Rejects Bid to Overturn Copyright Extensions for "Orphaned" Works
A group of Internet archive and activist organizations has lost its bid to overturn U.S. copyright law amendments that extended copyright protection for “orphaned” works. The U.S. Court of Appeals for the Ninth Circuit has affirmed a lower court decision, dismissing arguments that changes to U.S. copyright law in the 1990s violate First Amendment free speech rights and constitutional requirements of limited duration of copyrights. The plaintiffs in the case represented organizations that sought to make available for free on the Internet older, out-of-print works of little or no commercial value.
Prior to 1978, extended copyright protection for these “orphaned” works was restricted by registration renewal requirements that served as a filter allowing works to fall into the public domain where the author did not actively seek to renew its copyright. The Copyright Renewal Act of 1992 and the Sonny Bono Copyright Term Extension Act (1998) changed the U.S. copyright registration system by eliminating the notice and registration renewal requirement for works created between 1964 and 1977, and extending the renewal term to 67 years, effectively increasing the average copyright protection term for many works that would otherwise have fallen into the public domain. Critics of the law view these extensions as an effort to prolong Walt Disney Co.’s copyright over Mickey Mouse.
The Court rejected the plaintiff’s arguments that these extensions are constitutionally invalid, citing the U.S. Supreme Court decision in Eldred v. Ashcroft as having addressed essentially the same arguments and having held that the copyright amendments were constitutionally permissible.
For a copy of the U.S. Court of Appeals decision, visit:
Kahle v. Gonzales
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WTO Finds U.S. Non-Compliant with its Internet Gambling Decision
Despite a four year legal battle with Antigua and Barbuda, the U.S. has suffered a recent defeat in the pantheon of online gambling. In April 2005, the World Trade Organization (“WTO”) ruled that U.S. laws which barred the placing of bets across state lines, by electronic means, appeared to discriminate against foreign betting operators; and as such, violated WTO rules. However, since the 2005 decision, the U.S. Congress has passed subsequent legislation in order to ban online gambling.
In light of Antigua and Barbuda’s waning tourist industry, Internet gambling could provide the Caribbean country with a viable economic infrastructure. Thus, in July 2006, Antigua and Barbuda complained to the WTO that the U.S. has been non-compliant with the 2005 ruling, and WTO’s recent report tends to agree. However, the recent report was only a preliminary report issued to the U.S. and Antigua and Barbuda. As such, the U.S. will have an opportunity to submit comments to the WTO before it issues a final, public report, scheduled for March.
For additional information, visit:
http://news.com.com/2100-1028_3-6153682.html
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Italian Court Decriminalizes Not-for-Profit Downloading
Recently, Italy’s highest criminal court ruled that downloading was not a crime, as long as the intent was not to make profit. The Court overturned convictions of two former university students who, in 1994, set up a peer-to-peer file sharing network. Although the network was shut down in only a few months, they were both given one year sentences. On appeal, the sentences were subsequently reduced to three months, and the convictions were eventually tossed out by the highest criminal court.
However, analysts are quick to point out that copyright infringement such as cracking copyright files and distributing them for commercial purposes, although decriminalized, is still illegal. Moreover, the Italian agency, SIAE, which monitors copyright issues, states the ruling is somewhat academic, since the case predates current legislation, which already imposes a fine on anyone who shares, with or without profit, copyrighted materials over the Internet.
For additional information, visit:
http://www.siliconvalley.com/mld/siliconvalley/news/editorial/16520198.htm
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U.S. Courts Frequently Cite Wikipedia
Since 2004, U.S. judges have cited Wikipedia sources in over 100 of their judicial opinions; this includes 13 from the U.S. Circuit Court of Appeal. For example, Judge Richard Posner of the U.S. Court of Appeals, Seventh Circuit, praises Wikipedia as a “terrific resource” due to its convenience and accuracy. Although Wikipedia has been cited in judicial opinions discussing serious issues, Judge Posner notes that when it pertains to a critical issue, he finds it inappropriate to cite Wikipedia as a source.
However, legal scholars debate whether using Wikipedia in judicial opinions is viable. Notwithstanding its practical use, some feel that using Wikipedia in judicial opinions could potentially introduce opportunistic editing thereby creating articles that could influence a case’s outcome. There are also many who question the authenticity of Wikipedia sources.
For additional information, visit:
http://taxprof.typepad.com/taxprof_blog/2007/01/ny_times_should.html
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eBay Bans Auctions of Virtual Goods
As of January 29, 2007, the popular auction website eBay has confirmed its decision to ban auctions for the characters, currency, weapons, attire and accounts of massive multiplayer online games such as World of Warcraft, City of Heroes, EverQuest and others. However, the virtual world Second Life is not subject to the ban. A spokesperson for eBay, Hani Durzi, indicated that Second Life is exempt because it is not currently regarded as a game. With eBay no longer available as an option, third-party sites, such as Internet Gaming Entertainment, are expected to control the virtual item market, which is estimated at hundreds of millions of dollars a year.
While eBay said its decision, which is essentially a move to begin enforcing rules against virtual-item trades that already exist, stems from a desire to protect users, critics suggest the decision has larger implications for the market for virtual goods. Edward Castronova, a professor of telecommunications at Indiana University, suggests that eBay may be leaving the market to avoid legal disputes with game publishers and government regulators. The majority of online games forbid users from exchanging virtual goods from the game for real money (Second Life being a notable exception) and the Korean government is proposing laws to regulate real-world transactions for virtual goods.
For additional information, visit:
http://news.com.com/2100-1043_3-6154372.html
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U.S. First Sale Doctrine Applies to Audiobooks
The U.S. Sixth Circuit Court of Appeals recently ruled that while U.S. copyright’s “first sale doctrine” applies to sound recordings of musical works, it does not apply to sound recordings of literary works, otherwise known as “audiobooks” or “books on tape”. The first sale doctrine holds that a copyright owner controls the right to the underlying work, but the owner of the work itself can dispose of it in any manner chosen. In support of its claims for copyright and trademark infringement, Brilliance Audio, Inc. (“Brilliance”), a company in the business of producing and selling audiobooks in both retail and library editions, alleged that Haights Cross Communications, Inc. (“Haights”), a direct competitor, repackaged and relabelled Brilliance’s retail editions as library editions, marketing the repackaged products as Brilliance’s library editions and distributing them using Brilliance’s trademarks for commercial gain.
On the allegation of copyright infringement, Haights argued that its actions were protected under the first sale doctrine thus no infringement occurred. In response, Brilliance argued that 17 U.S.C. § 109(b)(1)(A) of the Record Rental Amendment of 1984 provided for a limited exception to the first sale doctrine that extended to sound recordings of literary works. The Circuit Court of Appeals, however, determined that the record rental exception only applies to sound recordings of musical works for several reasons: (i) the exception was adopted by Congress in 1984 when the exclusive focus of the testimony and legislators was on protecting the music industry; (ii) there was no evidence that Congress ever considered audio recordings of literary works when drafting the exception, with at least one committee report making clear such recordings were not covered by the exception; (iii) Congress had a history of expressly exempting particular works, including computer software, where extension of the copyright monopoly was warranted; and (iv) construing the exception broadly to cover sound recordings of literary works would upset the traditional bargain between the rights of copyright owners and the personal property rights of individuals who own a particular copy. Consequently, the Circuit Court of Appeals affirmed the district court’s initial dismissal of Brilliance’s copyright claims against Haights.
The Circuit Court of Appeals, however, reversed the district court’s dismissal of Brilliance’s trademark claims. In the context of trademark infringement, the court identified two situations in which the resale of a product is not protected by the first sale doctrine: (i) when the notice that the item has been repackaged is inadequate; and (ii) when an alleged infringer sells trademarked goods that are ‘materially different’ than those sold by the trademark owner. In each case, there is a danger of consumer confusion and trademark dilution. Based on these criteria, the Circuit Court of Appeals could not conclude there were insufficient facts to permit granting relief to Brilliance. The case was, therefore, remanded for proceedings accordingly.
For a copy of the decision, visit:
Brilliance Audio, Inc. v. Haights Cross Communications, Inc., et al.
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New Jersey Appeals Court Strengthens Privacy Rights of Internet Users
A state appeals court in New Jersey has held that Internet users who choose to be anonymous online can expect that the personal information they give their Internet service providers will be kept private.
The decision arose from a case in which an employee was accused of breaking into her employer’s computer system. Police investigators obtained a subpoena from a municipal court administrator (who did not have the power to grant such a subpoena), and used the subpoena to obtain information from an ISP that linked the accused employee with an anonymous online identity.
The appeals court held that by using an anonymous web address and screen name, the employee clearly intended to keep her identity private and thereby “manifested a reasonable expectation of privacy in her true identity” and had a “legitimate and substantial interest in anonymity”. The information on file with the ISP was therefore protected by the concept of “informational privacy”.
This decision will make it more difficult to obtain personal information on computer users from ISPs (at least in New Jersey), but authorities were quick to point out that it will not prohibit them from investigating computer crimes such as child pornography. Computerized personal information may still be obtained by investigators with an appropriate warrant or subpoena.
For additional information, visit:
http://tinyurl.com/2j59yc
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Political Attack TV Ads Potentially Breach Copyright Act
Recently, the Federal Conservative Party has placed television ads reproducing videotaped comments made by various Liberal Party leadership candidates at a recent leadership debate. Now, allegations have surfaced that the use of this footage may have violated copyright laws, according to the group of broadcasters that jointly filmed the debate.
While Canadian law does have a “fair dealing” exception to copyright infringement (notably more narrow than the US fair use exception), it does not appear that the Conservative Party’s broadcast falls within this exception, which allows use of copyrighted material for the purpose of criticism or review. It appears that the Conservative Party failed to source the content in accordance with the Copyright Act, which requires that the source and broadcaster of a “communication signal” be mentioned for the fair dealing exemption to apply. A viewing of one of the ads in question discloses that the necessary attribution is absent.
For an example of the ads complained of, visit:
http://thechronicleherald.ca/Canada/556069.html
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Federal Court Awards Maximum Statutory Damages for Copyright Infringements
In a decision handed down on January 16, 2007, Federal Court of Canada Judge Sean Harrington awarded Microsoft Corporation $500,000.00 in statutory damages, $20,000.00 each for the 25 copyright infringements by the defendants. Since the Copyright Act was amended in 1997 to include statutory damages, ranging from $500.00 to $20,000.00 per infringed work, this is the first time a Canadian court has awarded the maximum statutory damages for a counterfeiting case.
Justice Harrington also awarded Microsoft $100,000.00 in punitive damages from the corporate defendants, and $100,000.00 from the individual defendants who are the directing minds of the corporate defendants. The punitive damage awards are the highest in a Canadian counterfeit case to date.
However, the application by Microsoft for a broad permanent injunction was refused by the Court.
The defendants have appealed the decision.
History
In 1997, Microsoft received reports that Inter-Plus, a Quebec software reseller, was selling original equipment manufacturer (OEM) versions of its products on a stand-alone basis. Under the Microsoft business model, OEM versions are only to be distributed bundled with PCs and other computer hardware. Microsoft notified Inter-Plus that such sales were contrary to Canadian copyright law, and that many of the products distributed by Inter-Plus may be counterfeits. Upon analyzing products sent by Inter-Plus, Microsoft confirmed that the products were indeed counterfeits.
The RCMP and the Montreal Police executed search warrants at Inter-Plus in 1998 and 2000 respectively, seizing CD-ROMs and other products. However, the Crown prosecutor declined to press criminal charges on both occasions.
In August, 2000, Microsoft filed a civil suit in the Federal Court of Canada for copyright and trade-mark infringements against the two Quebec number corporations that own Inter-Plus, and against Adam and Carmelo Cerrelli, two individuals who are the directing minds of the number companies. In its statement of claim, twice amended to include additional copyright infringements, Microsoft sought statutory damages and punitive damages from the defendants, and a broad permanent injunction.
Judgment
Damages
In his judgment, Justice Harrington explained his reasons for awarding the maximum statutory damages for each of the infringed work. Section 38.1 of the Copyright Act allows the copyright owner to elect to recover an award of statutory damages with respect to each work that was infringed. An election for statutory damages does not affect the copyright owner’s right to exemplary or punitive damages.
In determining the amount of statutory damages, the Court must take into account whether the defendants have demonstrated that they were not aware, and had no reasonable grounds to believe, that they had infringed copyright. Another factor to be considered is what amount of damages would be proportional to the infringement.
Justice Harrington held that the defendants had not satisfied him that they had reasonable grounds to believe they had not infringed copyright. He further held that awarding a maximum of $20,000.00 in statutory damages for each of the 25 infringements, totaling $500,000.00 was proportional and necessary to deter other infringements of the copyrights in question.
Justice Harrington also held that he was satisfied that the defendants’ conduct was outrageous and that Microsoft was entitled to punitive damages of $100,000.00 from the two number companies jointly and severally and an additional $100,000.00 from Carmelo Cerrelli.
Permanent Injunction
Microsoft asked the Court to permanently enjoin the defendants from dealing in, now or in the future, counterfeit versions of Microsoft’s products and related material, and dealing in counterfeit marks. The court granted this portion of the Application. However, Justice Harrington stated that he could not grant the following injunctions sought by Microsoft:
- related corporations such as Ivorcom be specifically named in the permanent injunction, notwithstanding that it was not a defendant in this case;
- the injunction extend to anyone who becomes aware thereof, notwithstanding that that person may not be related to the defendants, much less under their control;
- the injunction extend to current Microsoft copyrights not identified in the action, and even to copyrights which have not yet been registered;
- the injunction prohibit the defendants from dealing in any Microsoft programs, including genuine Microsoft CD-ROMs or other material, which are not properly packaged and accompanied by the related components Microsoft requires its authorized dealers to package together, such as front-liners, back-liners, end user license agreements, client access licenses, certificate of authenticity, certificate of authenticity labels, and manuals.
In rejecting Microsoft’s request to expand the injunction to non-parties, Justice Harrington held that injunctive relief is discretionary, and it would be overzealous to purport to permanently enjoin non-parties; the injunction would be ex parte as against them and they would be entitled to move to set it aside.
As to the injunction covering copyrights not specifically identified, Justice Harrington declined to extend the subject matter of the injunction to copyrights not specifically alleged in the proceedings.
On the issue of Microsoft asking the Court to enjoin the defendants from dealing in Microsoft products other than those packaged and licensed to Microsoft’s satisfaction, Justice Harrington remarked that Microsoft is in effect seeking an order that Inter-Plus be kept out of the grey market, and in his opinion, the Copyright Act cannot be invoked to support Microsoft’s current business model.
For a copy of the decision, visit:
Microsoft Corporation v. Cerrelli et al.
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Patents for Dynamic Web Pages Undergo Re-examination
Two controversial patents held by Texas-based EpicRealm Licensing LLC are undergoing re-examination in the U.S. Patent and Trademark Office (USPTO) following requests by the Public Patent Foundation. The patents relate to methods and systems for managing requests to dynamically generate Web pages, for example, to provide a customized page that is responsive to user input.
EpicRealm Licensing sought licenses from numerous entities and filed suit against many in the patent holder-friendly Eastern District of Texas. The patents are also subject to an invalidity attack in a separate declaratory action by Oracle Corporation. Oracle brought the independent suit in Delaware in response to the Texas suit against Oracle’s customer Safelite.
It is still early days for the re-examination proceeding with no finding by the USPTO and numerous opportunities for EpicRealm to respond to USPTO rejections. The suits and re-examination proceeding highlight the need to examine US patent infringement liability issues in supply and service contracts and the strategies available to hit back against patent trolls and others seeking to extract licenses.
For additional information, visit:
http://news.com.com/2100-1030_3-6154385.html
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Israeli Court Rules Operation of Foreign Gambling Website a Criminal Offence Under Israeli Law
In a recent decision, the Rishon Le Zion Magistrate's Court in Israel ruled that the operation of a gambling website in Israel is an offence under the Israeli Criminal Act, which prohibits the operating of gambling activities, even though the servers on which the website is hosted are located outside of Israel. The operation of the website is considered by the Court to be a “local offence” given that the website was in Hebrew, aimed at Israeli users, and one on which Israeli users gamble and pay with Israeli credit cards.
For additional information, visit:
http://www.copyright.co.il/site/flash/flashDetail.asp?flash_id=66399
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