Category Archives: State Law

Details of the “patent troll” Minnesota consent decree

The first-in-the-nation settlement between the Minnesota Attorney General and patent litigant MPHJ Technology Investments has been widely reported, including by  the Washington Post, Bloomberg, Law360, and Ars Technica. But none of these outlets have posted a copy of the settlement agreement and the resulting court order.

The agreement and order can be found here. Captioned as an “Assurance of Discontinuance” (see Minn. Stat. § 8.31), the agreement and order together function as a consent decree.

Although several provisions of the agreement are interesting, perhaps most interesting is a stayed, conditional civil penalty:

MPHJ, including the MPHJ Subsidiaries and affiliates, represents and warrants that it has not received money from any Minnesota resident or entity for a patent license or an alleged infringement of a patent or patent rights. If, contrary to this representation and warranty, the State discovers Minnesota residents or Minnesota entities did pay MPHJ money for a patent license or for an alleged infringement of a patent or patent rights, then as penalty for violation of this Paragraph 4, MPHJ shall pay the State a civil penalty of $50,000 and refund all such money paid by Minnesota residents and entities.

The Assurance thus explains that MPHJ did not make any money from Minnesota residents in response to its demand letters.

Related cases in Vermont and Nebraska continue. Law360 reports that MPHJ removed the Vermont Attorney General’s litigation to federal court, and that the Attorney General is seeking to remand the case to state court. Meanwhile, a federal judge in Nebraska has granted a  preliminary injunction for the law firm that represents MPHJ, allowing it to continue litigating patent cases there The Nebraska Attorney General had sent the firm a cease-and-desist letter, demanding that the firm stop its patent-enforcement efforts. Patently O has more details here.

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Recent Fair Use Decision on Open-Records Laws and Copyright Protection

The Minnesota Court of Appeals recently added a decision to the small but growing body of law surrounding state open-records laws and copyright protection.

The case is National Council on Teacher Quality v. Minnesota State Colleges & Universities. Here’s the background. National Council on Teacher Quality sent a request under the Minnesota Government Data Practices Act—Minnesota’s open-records act—for copies of course syllabi maintained by the Minnesota State Colleges and Universities, known as MnSCU (and pronounced min-skew). MnSCU responded, saying (1) its faculty members’ intellectual-property rights might be violated by the National Counsel’s later use of those materials, and (2) MnSCU might be subject to liability under the copyright act. MnSCU

National Counsel sued and won. The district court concluded that National Counsel’s proposed use was fair use under the copyright act. Because the proposed use was fair use, the copyright act was no defense to MnSCU’s failure to disclose the syllabi.

MnSCU appealed and lost. MnSCU based its appellate argument primarily on its concern that copying the syllabi might expose MnSCU to copyright liability when National Counsel engages in conduct that does not constitute fair use. The court did not consider whether MnSCU’s copying of the documents itself violates the Copyright Act. The court of appeals held that once fair use is established, Minnesota’s open-records law does not allow an agency to withhold information based on a theoretical, future violation of the Copyright Act.

One amicus brief raised an interesting argument, claiming that even allowing National Counsel to view the syllabi—without copying—would  violate the Copyright Act. The amicus reasoned that the viewing would constitute a “public display” of the authors works and would therefore   violate of the owners’ rights under the Copyright Act. The court noted neither the statute nor cases supported argument that allowing a single party to view a copyrighted work might be a “public display” that would require the copyright holder’s permission.

The court’s case holding is as follows:

A state agency cannot rely on the Federal Copyright Act to refuse to disclose data that is the subject of a request for disclosure under the Minnesota Government Data Practices Act after the district court determines, without dispute, that the requestor intends only “fair use” of the data as defined by the copyright act.

The time to seek review from the Minnesota Supreme Court has not yet run, so this case may not yet be over. Stay tuned.

Open-Records Laws and Copyright Protection for State and Municipal Data

This past term the Supreme Court decided McBurney v. Young, a case involving a constitutional challenge to the citizen-only restriction of Virginia’s Freedom of Information Act (FOIA). Virginia law allowed citizens of Virginia to inspect and copy all state public records, but the act did not grant non-citizens the same right. The Court had little trouble unanimously ruling that neither the Privileges and Immunities Clause nor the dormant Commerce Clause barred the citizen-only restriction.

Although McBurney involved the copying of government data, it did not discuss the effects of copyright law on that copying. Copyright law governs reproduction. 17 U.S.C. § 106. State open-records laws, like Virginia’s FOIA, govern access to information—i.e, public availability. Open-records laws involve concerns regarding both access and copying, because state and municipal databases may contain information that is in the public domain and information protected by copyright. Public-domain information is information that is not covered by intellectual property rights (e.g., copyright). Black’s Law Dictionary 1265 (8th ed. 2004) (“When copyright, trademark, patent, or trade-secret rights are lost or expire, the intellectual property they had protected because part of the public domain and can be appropriated by anyone….”).

It is a common misconception that if government data is publicly available then it cannot be copyrighted. Case law, however, confirms the distinction between public-domain information and publicly available information with respect to open-records laws and copyright. In County of Suffolk v. First Am. Real Estate, 261 F.3d 179, 188-90 (2nd Cir. 2001), the appellate court analyzed the interplay between copyright ownership of municipal maps and open-records laws. The court held that open-records laws do not abrogate a copyright holder’s ownership of the publicly available information.  Id. at 190; accord Weisberg v. U.S. Dept. of Justice, 631 F.2d 824, 825, 828-30 (D.C. Cir. 1980) (records do not lose copyright protection simply because they become publicly available). Some courts hold that the Copyright Act “is not restricted to private parties and there is no reason to believe that such a restriction should be upheld. In fact, the opposite inference is required when only one specific governmental entity, the United States of America, is excluded from the protection of the Act.” E.g., Nat’l Conference of Bar Examiners v. Multistate Legal Studies, Inc., 495 F. Supp. 34, 35 (N.D. Ill. 1980), aff’d, 692 F.2d 478 (7th Cir. 1982).

Vermont, White House Aim at So-Called Patent Trolls

Vermont’s Attorney General has sued a patent holding company—MPHJ Technology Investments, LLC—for violation of the state’s consumer fraud statutes. The Vermont complaint alleges “unfair and deceptive trade practices.” The substance of the complaint asserts that one or more in a series of threatening letters was false, deceptive or misleading. Specifically, it says the letters falsely claimed to have received a “positive response,” misrepresented the treatment that most recipients gave the letter, or that the defendant did not make an adequate investigation before sending its letters threatening suit.

The complaint raises a host of interesting issues, including jurisdiction, federalism and the First Amendment. These types of suits may be preempted by 28 U.S.C. § 1338, which gives federal courts exclusive jurisdiction over claims arising under the patent laws. They may be impliedly preempted too. Further, the Petition Clause may limit state’s abilities to restrict the kinds of federal claims threatened or brought by persons. This is a case to watch.

The White House has taken notice of patent holding companies too. Recently it released a report titled “Patent Assertion and U.S. Innovation.” The report, prepared by the President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy discusses “Patent Assertion Entities” (PAEs). The report cites the recent uptick in litigation filed by PAEs:

patent_troll_chart

The White House’s report favorably cites the basis of Vermont’s lawsuit as an example of “abusive practices in litigation by patent assertion entities.” The report makes a few interesting points:

  • Not all PAEs are bad.
  • PAEs cause more harm than good in the net.
  • PAEs can harm large and small companies alike.
  • Claim uncertainty, especially in software patents, provides PAEs with an unfair bargaining power.
  • 19th Century patent litigation problems involving agricultural equipment and railroad equipment may provide a roadmap to address issues with today’s PAEs.

The report contains general recommendations to promote more straightforward, precise patents, to apply a higher burdens for novelty and non-obviousness, and to reduce patent litigation costs. The positions taken by the White House with respect to issues like Vermont’s are especially interesting because the likelihood that state-level action will be preempted may depend in large part on articulated federal goals and interests.

Can Schools Seize Ownership of Students’ Copyrights?

The Washington Post reports that Prince George’s County Board of Education has proposed asserting ownership over student copyrights. The draft policy states:

Works created by employees and/or students specifically for use by the Prince George’s County Public Schools or a specific school or department within PGCPS, are properties of the Board of Education even if created on the employee’s or student’s time and with use of their materials.

Further, works created during school/work hours, with the use of school system materials, and within the scope of an employee’s position or student’s classroom work assignment(s) are the properties of the Board of Education.

Examples of works which the Board hereby takes ownership are:

1. PGCPS Website

2. Individual School Website

3. Curriculum documents

4. Instructional materials for use in PGCPS or a specific school

5. Software and platforms developed for use by PGCPS, a specific school and/or the Board

6. Other works created for classroom use and instruction

The issue of Board ownership over its employees’ copyrightable works is well-settled. Board ownership over student-created work is less settled. bookshelves-with-books-in-library_w482_h725

The Board is a governmental actor, and therefore subject to the Constitution. In a draft outline, co-blogger Professor Cotter explains that the Fifth Amendment’s Takings Clause probably entitles a property owner to “just compensation” when their property—including intellectual property—is appropriated by the government. The Board’s proposal contemplates an condemnation-like power: “…the Board…hereby takes ownership.” Even if the Board has eminent domain or condemnation power under state or local law, its policy may still be ineffective at transferring ownership from student creators to the Board.

Federal law trumps conflicting state and local law. And 17 U.S.C. § 204 sharply limits how copyright ownership may be transferred:

A transfer of copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.

Some courts and commentators view the phrase “by operation of law” as referring to transfers of copyrights that are limited in number, and depend upon the owner’s express or implied consent. See Taylor Corp. v. Four Seasons Greetings, LLC, 403 F.3d 958, 963 (8th Cir. 2005).

It is unclear from the Board’s draft policy whether they expect students to consent to the Board’s assertions of ownership, or whether the Board is considering a policy to provide “just compensation” to students whose copyrights are taken by the Board.

Retailers Beware: “Browsewrap” Agreements Threaten Enforcement of Website Terms of Use (Or, Back to Contract Basics)

As Black Friday and Cyber Monday approach, a word of caution for online retailers: your website’s terms of use may be a “browsewrap” agreement, which could jeopardize its enforceability.  By now, most attorneys are familiar with the legal issues surrounding “clickwrap” agreements, which require users of software, websites, and the like to expressly assent to an agreement’s terms by clicking a button (often “I Accept” or “Agree”).  “Browsewrap” agreements go one step further, and require no affirmative action on the part of the user whatsoever.  These types of agreements came under fire recently in the District of Nevada, where a court refused to compel arbitration of a dispute between Zappos.com, Inc. (“Zappos”) and its customers.  In In re Zappos.com, Inc., Customer Security Breach Litigation, 3:12-cv-00325 (D. Nev. Sept. 27, 2012), several customers sued Zappos after hackers successfully accessed certain information the customers provided when purchasing goods on two Zappos-owned websites.  Zappos then moved to compel arbitration pursuant to its terms of use policy.  The court denied this motion despite the broad federal policy favoring arbitration as a venue for dispute resolution.

In striking down the terms of use agreements, the court noted that even the most basic of contract formation principles – acceptance – was not met.  The websites failed to effectively notify users that the agreements existed, and the agreements required no action on the part of the user to agree to be bound.  Without a manifestation of intent, the court reasoned, there could be no acceptance of their terms, and therefore no valid contract existed.  In addition to finding the agreement lacked acceptance, the court also found it was illusory.  By its terms, Zappos.com could change the terms and conditions at any time.  Not surprisingly, the customer could not.   Reserving such a unilateral, unrestricted right once again rendered the contracts unenforceable.

The court’s decision is simple enough, but it has broad implications for retailers and customers alike.  Given the proliferation of online shopping, retailers would be wise to consult with legal counsel when drafting terms of use agreements for their sites.  In addition, customers should not let the promise of clothing, digital cameras, and high-definition televisions blind them to any terms and conditions that would be disadvantageous should a legal issue arise.

Send Lawyers, Guns, and Patents

The New York times brings us a story about patents being used to block state regulation of bullet microstamping. Firearm microstamping imprints an identifying mark onto the bullet casing and the primer. See David Muradyan, Firearm Microstamping: A Bullet with a Name On It, 39 McGeorge L. Rev. 616 (2008).

California has passed a law supporting this technology, but the law is on hold, pending review of whether patent licenses are required to use the technology. The New York Times writes

In California, legislation signed by Gov. Arnold Schwarzenegger in 2007 has been held up while the attorney general’s office makes sure the technology is unencumbered by patents, as the microstamping law requires. A gun rights group, the Calguns Foundation, went so far as to pay a $555 fee to extend a lapsing patent held by the developer to further delay the law from taking effect.

“It was a lot cheaper to keep the patent in force than to litigate over the issues,” said Gene Hoffman, the chairman of the foundation, adding that he believed the law amounted to a gun ban in California.

Todd Lizotte, an engineer who developed the method in the 1990s, said he wanted the patents to lapse and the technology to be in the public domain.

California might be considered an “innocent bystander” in a potential patent dispute over this technology. (With apologies to Warren Zevon.)

Preempted State IP Laws and Their Constitutionality

ConstitutionThe Constitution’s Supremacy Clause gives Congress the power to preempt state laws through legislation. Preemption is a perennial issue in IP cases because patents and copyrights have traditionally been matters of federal law, but trademarks and trade secrets have traditionally been matters of state law. The Supreme Court has analyzed the preemptive effect of federal intellectual property laws in cases like Bonito Boats, Inc. v. Thunder Craft Boats, Inc. (1989) and  Sears, Roebuck & Co. v. Stiffel Co. (1964).

Because Congress’s power to preempt state law flows from the Supremacy Clause, some opinions seem to state that preemption is a type of unconstitutionality. See Biotech. Indus. v. District of Columbia, 496 F.3d 1362, 1366 (Fed. Cir. 2007) (discussing district court determination than an act was “preempted and therefore facially unconstitutional”). This view is common but incorrect.

Preemption and unconstitutionality are distinct legal concepts. Fla. Lime & Avocado Growers, Inc. v. Jacobsen, 362 U.S. 73, 82 (1960) (discussing difference between “conflict with the United States Constitution” and “conflict with the Federal Agricultural Marketing Agreement Act” as examples of distinct constitutional and preemption-based challenges to a state statute); In re Buder, 271 U.S. 461, 466 (1926) (holding that a claim of conflict between a state statute and a federal statute is not a constitutional challenge); see also Lemke v. Farmers’ Grain Co. of Embden, N.D., 258 U.S. 50, 51, 62 (1922) (separately analyzing attacks on a state statute on (1) grounds that it was unconstitutional and (2) that it conflicted with a federal statute).

When examining whether a state law is preempted, courts will compare that law with a federal law—not with the Constitution itself. The Supremacy Clause tells us nothing about whether federal copyright law preempts state trade regulations. Federal copyright law, however, does control whether a given state law is preempted. In the absence of federal IP statutes, states would be free (or more free) to enact their own IP laws. Until then, many state IP laws may be preempted, but those laws are not—strictly speaking—unconstitutional.

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