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July 9, 2001, 9:00 AM ET, Alert No. 222.
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Implied in Fact Contract Claims not Preempted by Copyright Act
7/6. The U.S. Court of Appeals (6thCir) issued its opinion in Wrench v. Taco Bell, a case involving preemption of state law contract and tort remedies by the federal Copyright Act.
Background. The plaintiffs, Wrench LLC and its two principals, are the creators of a cartoon character named "Psycho Chihauhua." Following discussions with the plaintiffs, the defendant, Taco Bell, began an ad campaign featuring a Chihuahua dog similar to that developed by plaintiffs, but without plaintiffs' permission. Plaintiffs filed a complaint in U.S. District Court (WDMich) against Taco Bell, based upon diversity of citizenship, in which they plead various implied contract and tort causes of action.
District Court Opinions. The trial court issued three opinions. It granted summary judgment to Taco Bell on the grounds that the Copyright Act preempted all of the claims, including those based on breach of an implied in fact contract. The trial court also held that plaintiffs' concept lacked the novelty necessary to sustain their claims. (See, 1998 WL 480871, 36 F. Supp. 2d 787, and 51 F. Supp. 2d 840.)
Appeals Court. The Appeals Court reversed. The preemption language of the Copyright Act, found at  301, provides that a state common law or statutory claim is preempted if the work is within the scope of the "subject matter of copyright," as specified in  102 and 103, and, the rights granted under state law are equivalent to any exclusive rights within the scope of federal copyright as set out in  106. The Appeals Court held that neither the subject matter nor equivalency prongs of the test were satisfied, and hence, there is no preemption. It held that since the plaintiffs' claims pertain to intangible ideas and concepts, they do not come within the subject matter of copyright;  102(b) expressly excludes intangible ideas and concepts. It also held that an implied in fact contract claim under Michigan law contains the additional element of expectation of compensation, which is not an element of a  106 claim, and hence, not equivalent. The Appeals Court also held that the Michigan Courts would not impose a novelty requirement in an implied in fact contract claim.
James Condemns EU Action on GE Honeywell Merger
7/3. The EU announced that it is blocking GE's acquisition of Honeywell. It asserted that antitrust is the basis. See, EU release. U.S. Assistant Attorney General in charge of the Antitrust Division, Charles James, promptly condemned the action as protectionist, rather than antitrust based.
James issued the following statement. "Having conducted an extensive investigation of the GE/Honeywell acquisition, the Antitrust Division reached a firm conclusion that the merger, as modified by the remedies we insisted upon, would have been procompetitive and beneficial to consumers. Our conclusion was based on findings, confirmed by customers worldwide, that the combined firm could offer better products and services at more attractive prices than either firm could offer individually. That, in our view, is the essence of competition. The EU, however, apparently concluded that a more diversified, and thus more competitive, GE could somehow disadvantage other market participants. Consequently, we appear to have reached different results from similar assessments of competitive conditions in the affected markets. Clear and longstanding U.S. antitrust policy holds that the antitrust laws protect competition, not competitors. Today's EU decision reflects a significant point of divergence. For years, U.S. and EU competition authorities have enjoyed close and cooperative relations. In fact, there were extensive consultations in this matter throughout the entire process. This matter points to the continuing need for consultation to move toward greater policy convergence."
Bush Picks Mueller for FBI Director
7/5. President Bush nominated Robert Mueller to be Director of the FBI. He was acting Deputy Attorney General for the Department of Justice from January through May of 2001. Before that he was the U.S. Attorney for the Northern District of California, which includes the Silicon Valley / San Francisco area. Prior to that he was Chief of the Homicide Section of the U.S. Attorney's Office for the District of Colombia. He was also the Assistant Attorney General in charge of the Criminal Division during the administration of the elder President Bush. See also, statement by President Bush and statement by Attorney General John Ashcroft.
Members of Congress were quick to criticize the FBI, but not Mueller. Sen. Pat Leahy (D-VT), the Chairman of the Senate Judiciary Committee, stated in a release that "The new FBI director will inherit an agency with superb resources and capabilities, but it is also an agency beleaguered by a series of high-profile mistakes and by a culture that too often does not recognize and correct its errors. It will be the committee's job to determine if Mr. Mueller is the right person for the job." The Committee has jurisdiction over this nomination. Also, Sen. Charles Grassley (R-IA), another member of the Senate Judiciary Committee, stated in a release that he will meet with Mueller on Monday, July 9. He stated that "I look forward to sitting down with Mr. Mueller and talking about the systemic problems I've identified with the FBI and the kinds of dramatic reforms that must be made in order to restore public confidence in federal law enforcement". Rep. Bob Barr (R-GA), a member of the House Judiciary Committee, stated in a release that "The FBI is an agency, that in recent years, has grown too powerful with too little oversight; and as a result, has lost much confidence of the American people."
Privacy News
7/3. The ACLU sent a letter to the FTC asking it to investigate Eli Lilly for inadvertently using the "to" line to address an e-mail to hundreds of users of the anti depressant drug Prozac, thereby disclosing the e-mail list to those on the list. See also, ACLU release.
The Senate Commerce Committee, which is now Chaired by Sen. Ernest Hollings (D-SC), has scheduled a hearing on Internet privacy for Wednesday, July 11, at 9:30 AM. See, release.
New Documents
Moore: speech re hooligans who attempt to disrupt WTO meetings, 7/6 (HTML, WTO).
Moore: speech re new round of trade negotiations, 7/5 (HTML, WTO).
USCA: opinion in Hoffman v. LA Magazine re IP rights and the First Amendment, 7/6 (PDF, USCA).
USCA: opinion in Wrench v. Taco Bell re preemption under the federal Copyright Act, 7/6 (HTML, USCA).
USCA: opinion in NPR v. FCC re noncommercial educational broadcast licenses, 7/3 (HTML, USCA).
USCA: opinion in In Re Digi International Securities Litigation re pleading securities fraud, 7/5 (PDF, USCA).
USCA: opinion in Building Owners and Managers Assoc. Intl. v. FCC re OTARD rule, 7/6 (HTML, USCA).
USCA: opinion re False Claims Act, 7/5 (PDF, USCA).
USCA: opinion in US West v. Washington re reciprocal compensation, 7/3 (PDF, USCA).
Tauzin: letter to Rep. Dreier re Torricelli amendment, 7/6 (HTML, HCC).
ICANN: Third Status Report to the Department of Commerce, 7/3 (HTML, ICANN).
First Amendment Trumps IP Rights in Tootsie Case
7/6. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Hoffman v. LA Magazine, reversing the District Court's holding that the LA Magazine had misappropriated actor Dustin Hoffman's name and likeness by publishing a fake photo of him in women's cloths. The Appeals Court invoked New York Times v. Sullivan, the landmark First Amendment case protecting serious journalism, to insulate a publisher of a fake celebrity photo from intellectual property claims. While the suit is over publication of a computer altered photo of Hoffman, the intellectual property issues involved in the case will affect a broad range of other fact patterns.
Facts. Dustin Hoffman starred in a 1982 movie titled "Tootsie" in which he played the part of a straight man who dressed up as a woman to get an acting job. In 1997 LA Magazine (LAM) published an altered photograph from the movie. It did not obtain the permission of either Hoffman or the copyright holder, Columbia pictures. LAM used computer technology to alter a still photograph from the movie to depict Hoffman in a Richard Tyler gown and Ralph Lauren heels. The caption referenced the Lauren heels; Lauren advertised in the same issue.
Complaint. Hoffman filed a complaint in California state court against LAM's parent company, Capital Cities/ABC (now ABC), alleging that LAM's publication of the altered photograph misappropriated Hoffman's name and likeness in violation of the California common law right of publicity, the California statutory right of publicity (Civil Code 3344), the California unfair competition statute (Business and Professions Code 17200), and the federal Lanham Act (15 U.S.C. 1125(a)). The defendant removed the case to U.S. District Court (CDCal). Hoffman later added LAM as a defendant.
District Court. The District Court held for Hoffman on all claims against LAM. It also rejected LAM's First Amendment defense, holding that the "First Amendment does not protect the exploitative commercial use of Mr. Hoffman's name and likeness." The Court also awarded Hoffman $1.5 Million in compensatory damages and $1.5 Million in punitives.
Appeals Court. A three judge panel of the Ninth Circuit reversed, and directed that judgment for LAM be entered. In many recent cases defendants have sought unsuccessfully to avoid the consequences of intellectual property laws by invoking the First Amendment clause protecting "freedom of speech or of the press". However, in this case, the Court reversed on First Amendment grounds. The Court held that the publication of the picture in question was not commercial speech. It further held that since Hoffman is a public figure, he could only prevail by showing actual malice, that its, "reckless disregard for the truth" or a "high degree of awareness of probable falsity", pursuant to New York Times v. Sullivan, 376 U.S. 254 (1964). But, the Court reasoned, there was no falsity, because the LAM article stated that the photo was a fake. Robert Boochever wrote the opinion; Wallace Tashima and Richard Tallman joined.
9th Circuit Construes False Claims Act
7/5. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in Seal 1, federal False Claims Act case. Abraham Gale worked for ten weeks for Packard-Bell NEC (PBNEC) before being fired. He then filed a qui tam action against that company under the False Claims Act (FCA), alleging that it had committed fraud by selling computers to the government as new even though they contained used parts. The government declined to intervene. Gale then learned from government investigators that Zenith may have been involved in the same type of fraud as PBNEC; he then filed a separate FCA action against Zenith. The District Court held that it did not have jurisdiction over Gale's FCA claim against Zenith. The Appeals Court affirmed on the basis that Gale was not the original source of the information against Zenith.
The False Claims Act is a statute designed to give "whistle blowers" an incentive to disclose fraud upon the government. It allows parties who bring qui tam actions, as "relators" on behalf of the government, to share in the recovery. The Appeals Court noted that "The compensation available to relators, however, encourages parasitic lawsuits in which those with no independent knowledge of fraud use information already available to the government to reap rewards for themselves without exposing any previously unknown fraud."
DC Circuit Upholds OTARD Order
7/6. The U.S. Court of Appeals (DCCir) issued its opinion in Building Owners and Managers Assoc. Intl. v. FCC, a petition for review of the FCC's rule prohibiting restrictions on certain over the air reception devices (aka OTARD) that are designed to receive direct broadcast satellite service, video programming services via multipoint distribution services, or TV broadcast signals. Several trade associations challenged the FCC's order on the grounds that it exceeds the statutory authority of the FCC, constitutes an unconstitutional taking, and is arbitrary and capricious. Petition denied.
Judge Rogers wrote the opinion, in which Randolph and Garland concurred. In addition, Randolph wrote a separate concurance to state that he would have overruled Bell Atlantic v. FCC, 24 F.3d 1441 (D.C. Cir. 1994).
8th Circuit Rules in Digi International Securities Case
7/5. The U.S. Court of Appeals (8thCir) issued its unpublished opinion [PDF] in In Re Digi International Securities Litigation, a consolidation of securities fraud actions. The numerous plaintiffs' complaints allege violation of  10(b) and 20(a) of the Securities Exchange Act of 1934, and other causes of action. Plaintiffs alleged fraud by Digi International and three of its former officers for artificially and fraudulently inflating Digi's earnings by improperly accounting for Digi's investments in AetherWorks. Defendants moved to dismiss the complaints for failure to plead fraud with particularity pursuant to FRCP 9(b) and the Private Securities Litigation Reform Act (PSLRA), and for failure to state a claim pursuant to FRCP 12(b)(6). The District Court dismissed some claims prior to discovery, and others in a second ruling after discovery. Plaintiffs appealed. The Appeals Court affirmed with little explanation. However, the Appeals Court did comment on the meaning of scienter.
7/3. The U.S. Court of Appeals (DCCir) issued its opinion in NPR v. FCC, a petition for review of an FCC order regarding noncommercial educational broadcast licenses. The Appeals Court vacated the FCC's determination that noncommercial educational broadcast applications are subject to auction when the applicant applies to operate on a channel that has not been reserved for noncommercial educational stations.
9th Circuit Reverses Recip Comp Determination
7/3. The U.S. Court of Appeals (9thCir) issued its opinion [PDF] in US West v. Washington, an appeal of a District Court summary judgment affirming a Washington state reciprocal compensation arbitration determination. Washington concluded that AT&T Wireless should be compensated at the lower end-office rate for US West traffic terminating on its network, rather than at the higher tandem rate. US West filed a complaint in U.S. District Court (WDWash) seeking review of the arbitration determination. AT&T counterclaimed. The District Court upheld the arbitration determination. The Appeals Court reversed.
WTO Chief Condemns "Anti Globalization Dot Com Types"
7/6. WTO Director General Mike Moore gave a speech in Geneva, Switzerland, titled "Open Societies, Freedom, Development and Trade". It was a condemnation of the hooligans who use violence to try to stop WTO meetings from taking place. He criticized the "mindless, undemocratic enemies of the open society who have as a stated aim the prevention of Ministers and our leaders from even meeting."
However, Moore also stated that "It would strengthen the hand of those who seek change if NGOs distance themselves from masked stone-throwers who claim to want more transparency, anti-globalization who trot out slogans that are trite, shallow and superficial. This will not do as a substitute for civilized discourse." He did not explain what he meant by the phrase "anti-globalization"
7/5. DG Moore also gave a speech in Interlaken, Switzerland, in which he again advocated a new round of multilateral trade negotiations.
Monday, July 9
11:00 AM. The U.S. International Trade Commission will hold a meeting. The agenda includes Document No. GC-01-068 in Inv. No. 337-TA-455, regarding certain network interface cards and access points for use in direct sequence spread spectrum wireless local area networks. Location: USITC, Room 101, 500 E Street SW, Washington DC.
12:00 NOON. The Senate will reconvene following the July Fourth recess. It will take up S 1077, the supplemental appropriations bill.
Tuesday, July 10
12:00 NOON - 1:30 PM. The Internet Education Foundation (501(c)(3) affiliated with the Congressional Internet Caucus Advisory Committee) will host a panel discussion on the Markle Foundation's study titled "Toward a Framework for Internet Accountability." The speakers will be Zoe Baird (Markle Foundation) and Stan Greenberg (Greenberg, Quinlan, and Rosner Research). Lunch will be served. RSVP to Danielle at or 202-638-4370. Location: Reserve Officers Association, One Constitution Ave, NE, Washington DC.
2:00 PM. The House reconvenes following its July 4 recess. The House will consider several non tech related measures under suspension of the rules.
2:00 PM. The House Ways and Means Committee's Subcommittee on Trade will hold a hearing on renewal of Normal Trade Relations with the People's Republic of China. Location: Room B-318 Rayburn Building.
People and Appointments
7/3. Kevin Martin was sworn in as an FCC Commissioner. His term ends June 30, 2006. His prior experience includes being an associate at the Washington DC law office of Wiley Rein & Fielding, advisor to former Commissioner Harold Furchtgott- Roth, and aide to George W. Bush. See, FCC release.
7/2. Daniel Lungren joined the law firm of Venable Baetjer as a partner. He represented Los Angeles County and Orange County in the U.S. House of Representatives from 1979 through 1989. He was a member of the House Judiciary Committee. He was also California Attorney General from 1991 through 1999. See, Venable release.
7/5. Seth Waxman joined the Washington DC office of the law firm of Wilmer Cutler & Pickering as a partner. He was previously Solicitor General of the United States. See, release.
7/3. President Bush announced his intent to nominate Phil Bond to be Under Secretary of Commerce for Technology. This office oversees the National Institute of Standards and Technology and the National Technical Information Service. He is currently director of Hewlett Packard's Federal Public Policy Programs. Bond was Chief of Staff to Rep. Jennifer Dunn (R-WA) from 1993 to 1998. See, White House release and HP release.
7/3. President Bush announced his intent to nominate Clifford Sobel to be Ambassador to the Netherlands. Sobel is Chairman of Net2Phone, a provider of Internet telephony service. See, WH release. He is also a major Republican political contributor.
7/4. The partners of the Canadian law firm of Gowling Lafleur Henderson and the Toronto based Smith Lyons voted to merge their operations, effective September 1, 2001. See, release.
Torricelli Amendment
7/6. Rep. Billy Tauzin (R-LA), Chairman of the House Commerce Committee, and Rep. Fred Upton (R-MI), Chairman of the Telecom Subcommittee, wrote a letter to Rep. David Dreier (R-CA), Chairman of the House Rules Committee, regarding the Torricelli amendment. This is an amendment to the McCain Feingold campaign finance bill that imposes a new lowest unit charge rule on broadcasters, cable operators, and satellite providers. Tauzin and Upton requested that the Rules Committee craft a rule that would delete the provision from the base text of the Shays Meehan bill, yet permit its proponents to offer an amendment on the House floor.
On June 28, 2001, the House Administration Committee reported two bills. HR 2360, sponsored by Rep. Robert Ney (R-OH) and Rep. Al Wynn (D-MD), was reported favorably. HR 2356, sponsored by Rep. Chris Shays (R-CT) and Marty Meehan (D-MA), was reported unfavorably. HR 2356 more closely resembles S 27, the McCain Feingold bill, which passed the Senate on April 2 after a long and contentious debate. It contains the Torricelli amendment.
Sen. Robert Torricelli (D-NJ) is an unlikely sponsor of campaign finance reform legislation. Torricelli, and current and former staff members, are currently being investigated by U.S. Attorney Mary Jo White (SDNY) for violation of campaign finance laws. Several persons have already plead guilty to making illegal contributions to his campaign.
More News
7/3. The ICANN released its Third Status Report to the Department of Commerce regarding the transfer of responsibility for functions involving the technical management of the Internet from the U.S. Government and its contractors to the private sector.
7/3. The FTC filed a complaint in U.S. District Court (DUtah) against Christopher Enterprises alleging violation of the Federal Trade Commission Act in connection with marketing of unproven herbal health products via the Internet and other media. The parties simultaneously filed a Stipulated Order for Preliminary Injunction. See also, FTC release.
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