Laws of .com

Volume VI, Issue 12: June 12, 2008

Bell Canada Sued For Shaping Internet Traffic

US Supreme Court Rules Against Multiple Royalties Claims in Patent Disputes

Australian Survey Finds Email Leaks Leading to Increased Dismissal of Employees

US Appellate Court Upholds Virginia's Law on Online Solicitation of Minors

Overstock Sues New York over New Retail Sales Tax Legislation

U.S. Supreme Court Refuses to Intervene in Dispute over Fantasy Sports Game

French Court Finds eBay Liable for Sale of Counterfeit Handbags

Class Action Status Granted to Municipality Against Online Travel Companies For Uncollected Tax

U.K. Broadcaster to Create Web Page for each TV Episode Going Back 80 Years

Bell Canada Sued For Shaping Internet Traffic

Bell Canada is facing another challenge to its Internet throttling practices as Quebec's consumer watchdog, L'Union des consommateurs, filed a class-action lawsuit on May 29, 2008 in Quebec Superior Court against the company. The lawsuit alleges that by deliberately slowing Internet service speeds, Bell has misrepresented its service to consumers and raised concerns over users’ privacy. The suit seeks a return of 80 percent of the subscriber fees, which L’Union des consommateurs claims is the equivalent to the reduction in speed, as well as additional compensation for false advertising and privacy violations.

Bell has previously admitted to using deep-packet inspection (DPI) technology to slow down (known as “throttling” or “traffic shaping”) some Internet applications, particularly peer-to-peer applications such as BitTorrent, during peak hours. Rogers Communications, another major Internet Service Provider ( ISP), has also acknowledged the use of DPI technology, as have several U.S.-based ISPs. The position of the ISPs is that a small percentage of users engaged in heavy peer-to-peer file transfers can congest the network for all users, necessitating the use of DPI to ensure consistent network speed and access for all users during peak periods.

Bell is also currently addressing a complaint made to the Canadian Radio-television and Telecommunications Commission (CRTC) in April by the Canadian Association of Internet Providers (CAIP), a group of 55 small ISPs that rent network access from Bell. The CAIP is alleging that the DPI throttling is additionally affecting users of Virtual Private Networks (VPNs) who work from home, as well as users of Voice over IP (VoIP) telephone systems, not just peer-to-peer applications. Submissions from both sides are due in June, with a CRTC ruling expected in September.

For additional information, visit :
http://www.cbc.ca/technology/story/2008/06/02/tech-quebec.html

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US Supreme Court Rules Against Multiple Royalties Claims in Patent Disputes

Patent rights holders are limited in their abilities to collect multiple royalties following a recent U.S. Supreme Court decision. The Supreme Court held that LG Electronics, Inc. (LGE) cannot seek patent royalties from customers of its customer, Intel Corp. LGE licensed some of its patents to Intel to make chipsets and attempted to reserve rights to further combinations and use of those chipsets by Intel’s customers. The Supreme Court refused LGE’s attempt at post-sale restrictions and applied the doctrine of first-sale exhaustion: the sale of an invention exhausts the patent-holder’s rights to control how purchasers use the invention. Exhaustion applies to “method-type” patents as well as to the sale of products that do not fully practice the invention if the products embody the essence thereof and their reasonable and intended use is to practice the invention.

Did the Supreme Court leave the door open to a patent holder imposing contractual restrictions on use by the customer’s customer? LGE licensed the patents in a license agreement that did not purport to alter patent exhaustion rules. Thus, the first sale by Intel was an authorized sale that triggered the exhaustion.

For additional information, visit:
http://www.patentlyo.com/patent/2008/06/supreme-court-d.html

For a copy of the decision visit:
http://www.eff.org/files/filenode/quanta_v_lg/quanta.pdf

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Australian Survey Finds Email Leaks Leading to Increased Dismissal of Employees

An Australian survey company says that one in five businesses has terminated an employee for leaking “sensitive or embarrassing” company data via outbound email in the past year.

The survey conducted by Proofpoint/Forrester found that 23 percent of Australian survey respondents were the victims of data leakage by employees. In addition, the number of employees that were disciplined as a result of data leakage via email is on the increase.

However, some organizations find it difficult to scrutinize all dissemination of confidential data via email because there is a shortfall of technology needed to prevent such leakage. Additionally, the cost of conducting an investigation is also quite significant.

For additional information, visit:
http://www.australianit.news.com.au/story/0,24897,23798577-5013044,00.html

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US Appellate Court Upholds Virginia's Law on Online Solicitation of Minors

A three-judge panel unanimously held that the state of Virginia law against sending indecent messages to minors is constitutional.

Dean Robert Podracky used an AOL messaging program to communicate with a sixteen year old minor. After the minor’s parents got involved, the Virginia Beach Police Department began an investigation in which a detective pretended to be the minor in subsequent chat sessions. Mr. Podracky inquired whether the minor was really sixteen and suggested that they meet up in a hotel to have sex and to take sexually explicit photographs. The detective and several other officers greeted Mr. Podracky at the hotel and served a warrant to search his room.

In a brief 12-page ruling, the Virginia Court of Appeal rejected the argument that the statute is overbroad because it prohibits free speech in violation of the U.S. Constitution’s First Amendment. As a general principle, the First Amendment bars the government from dictating what Americans see, read, speak or hear. However, the decision reiterated a U.S. Supreme Court ruling that offers to engage in illegal transactions are categorically excluded from First Amendment protection.

Mr. Podracky relied heavily on an earlier U.S. Supreme Court ruling that struck down two provisions of a different federal law. Under that law, someone could commit a crime by publishing indecent materials (that adults have a constitutional right to see) on the Internet. In this decision, the Virginia Court of Appeal distinguished between knowingly communicating indecent material to minors and knowingly using a communication system to solicit a minor for certain criminal acts.

For a copy of the decision, visit:
http://www.courts.state.va.us/opinions/opncavwp/0113071.pdf

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Overstock Sues New York over New Retail Sales Tax Legislation

In April of 2008, New York State passed tax legislation requiring companies that pay New York-based companies to advertise or refer customers to them to collect retail sales tax from New York-based customers. This new law attempts to circumvent a 1992 Supreme Court decision that held retailers are not required to collect sales tax from customers who live in states where the businesses do not have a physical presence.

Amazon.com, while abiding by the new law by collecting the taxes, was the first online retailer to file suit against New York State claiming that the law is unconstitutional based on the Supreme Court’s earlier ruling. Overstock.com has now also filed a lawsuit against New York State and went further by cutting ties to its more than 3,400 New York-based affiliates who would no longer be able to provide advertising for Overstock.com.

The new law is expected to generate $50 million in revenue for New York this year; however the new law may create a chilling effect on the online retail business, especially if other jurisdictions follow New York’s lead.

Overstock.com’s counsel is confident that this new law will be defeated by the courts because New York cannot constitutionally require Overstock.com to collect the taxes.

For additional information, visit:
http://news.cnet.com/8301-10784_3-9956576-7.html

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U.S. Supreme Court Refuses to Intervene in Dispute over Fantasy Sports Game

The U.S. Supreme Court recently refused to intercede in an ongoing dispute between Major League Baseball (MLB) and CBC Distribution and Marketing Inc. (CBC), a fantasy sports business that caters to a quarter million customers.

The 2005 lawsuit was initiated by CBC when it was banned from using players’ names in its fantasy games because it failed to obtain a license from a subsidiary of MLB. CBC argued that players’ names and baseball statistics were not the intellectual property of MLB as this information is readily available in newspapers and on the Internet. MLB’s Internet media arm, which was later joined by the pro-baseball players’ union, claimed that CBC’s actions violated the players’ publicity rights protected by state law. A right to publicity is a person’s right to control and profit from the commercial use of his name and likeness.

CBC was successful at both the district court and appeal court levels. The 8 th U.S. Circuit Court of Appeals stated that CBC’s “first amendment rights in offering its fantasy baseball products supersede the players’ rights of publicity.” It was finally strike three for MLB on Monday, June 2, 2008 when the U.S. Supreme Court refused without comment to hear the case.

The significance of this decision for the $1.5 billion fantasy sports industry is that it permits companies to use players’ names and statistics without paying licensing fees. This translates into higher profits for companies like CBC which offer a variety of fantasy baseball games, with entry fees as high as $1000 and annual sales of more than $3.4 million in 2004 and 2005.

For additional information, visit:
http://cbs.sportsline.com/mlb/story/10850908

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French Court Finds eBay Liable for Sale of Counterfeit Handbags

A French court has fined eBay France €20,000 for failing to take sufficient measures to guard against the sale of counterfeit Hermès handbags by an eBay vendor. The lawsuit, which was brought by luxury goods maker Hermès International, sought to hold eBay France and an affiliate, as well as the individual vendor, liable for counterfeiting. The court rejected eBay’s argument that it was simply an intermediary that had no control over the content placed by its vendors on the eBay site. The court further found that the prohibitions in eBay’s general terms of use were insufficient to discharge eBay’s duty to guard against misuse of its site, and that eBay should require vendors to provide means of identification for the objects that they sell (such as product and serial numbers or authenticity certificates).

For additional information, visit:
http://www.bloomberg.com/apps/news?pid=20601127&sid=a4WnYL3oMJ1c&refer=law

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Class Action Status Granted to Municipality Against Online Travel Companies For Uncollected Tax

A federal judge in Texas granted class certification to the city of San Antonio in its lawsuit against Online Travel Companies (“OTCs”) such as Orbitz, Travelocity and Hotels.com.

San Antonio and some 175 other municipalities in Texas allege that OTCs have failed to pay “hotel occupancy taxes” owed to the municipalities. The amount owed has not been disclosed; however there is no statute of limitation barring claims for failure to pay hotel taxes, which means the OTCs may be on the hook from their first failure to pay the hotel taxes to the present.

The OTCs contract with hotels for a certain number of rooms at a designated price and then sell the rooms at a higher price to online consumers. The OTCs remit taxes based on the rate they pay the hotels. The municipalities claim that the OTCs should remit the full amount of tax based on the rate that the consumers pay to the OTCs. The OTCs argue that the difference in price that the consumers pay is a “service facilitation fee” and therefore not subject to the hotel occupancy tax. The OTCs further argue that since they are not the owners or operators of the hotels, they are not subject to ordinances, some of which were written before Internet commerce, that target owners and/or operators.

For additional information, visit:
http://www.bnasoftware.com/knowledgecenter/dtr/article.aspx?id=1148
http://www.chron.com/disp/story.mpl/metropolitan/5808961.html

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U.K. Broadcaster to Create Web Page for each TV Episode Going Back 80 Years

BBC, the U.K. based broadcasting corporation, plans to create a perpetual, online archive of its TV programming by creating individual web pages for each episode of every programme that it has produced since the 1930’s. Each page will contain basic data about the show and video or audio clips, as well as directions on where the full content of the programme is available on the Internet, whether on the bbc.co.uk web site or a third party web site such as iTunes or Kangaroo. BBC hopes that the move will release the public value in the archive and increase the shelf life of the programmes.

For additional information, visit:
http://www.guardian.co.uk/media/2008/jun/10/bbc.digitalmedia

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