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July 10, 2007, Alert No. 1,608.
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4th Circuit Issues Amended Opinion in Phelps v. Galloway

7/5. The U.S. Court of Appeals (4thCir) issued its second opinion [22 pages in PDF] in Phelps v. Galloway, a copyright case involving architectural designs.

The Court of Appeals issued its original opinion [23 pages in PDF] on February 12, 2007. TLJ wrote at that time that Court of Appeals misapplied the first sale doctrine and otherwise engaged in "strained legal analysis". See, story titled "4th Circuit Applies eBay v. MercExchange in Copyright Injunction Case" in TLJ Daily E-Mail Alert No. 1,536, February 13, 2007. The facts of the case, and the relevant statutes, are set out TLJ Daily E-Mail Alert No. 1,536, and hence, are not restated in this story.

The copyright holder (Phelps) filed a Petition for Rehearing. After rehearing, the same three judge panel issued its second opinion on July 5, 2007. The just released opinion provides no further relief for the copyright owner (Phelps). However, the amended opinion removes some of the more untenable portions of the original opinion, and limits the impact that it might have on other types of copyright.

This amended opinion remains a setback for architects and designers of homes and other buildings, although not as much as the original opinion. How much it will affect other creators and holders of copyrights is less clear.

This is a case involving infringement of an architectural design copyright. The Court of Appeals affirmed the District Court's denial of an injunction of the construction, sale, or lease of an upscale house built with the copyrighted design. It so doing, it extended the Supreme Court's holding regarding the availability of injunctive relief in patent cases in eBay v. MercExchange to copyright cases.

The Supreme Court held in its May 15, 2006, opinion [12 pages in PDF] that "a plaintiff seeking a permanent injunction must satisfy a four-factor test before a court may grant such relief. A plaintiff must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction."

The Supreme Court wrote in dicta that this applies to copyright also. See, story titled "Supreme Court Rules on Availability of Injunctive Relief in Patent Cases" in TLJ Daily E-Mail Alert No. 1,371, May 16, 2006.

Both opinions of the Court of Appeals also limited the damages of the copyright holder (Phelps) to the license fee that it would have changed ($20,000). That is, these opinions leave would be infringers of architectural designs little incentive not to infringe.

Moreover, both the original and the amended opinion affirmed the District Court's failure to award the infringer's (Galloway) profits. However, the Court accomplished this by evidentiary sleight of hand. The District Court allowed the infringer to provide opinion testimony to the jury as to the value of the completed house, although he is not an expert, and allowed the infringer to introduce as evidence the local taxing authority's valuation of the property, while excluding from the jury the testimony of the copyright holder's expert witness on the value of the property. Thus, the infringer convinced the jury that there was no profit to award to the copyright holder.

Both opinions of the Court of Appeals affirm the District Court's denial of injunctive relief. Indeed, the copyright holder has yet to recover even infringing copies of the design.

The Court of Appeals' amended opinion applies the four part eBay test, and finds that while the first two prongs weigh in the copyright holder's favor, the other two (the balance of hardships, and public interest) weigh in the infringer's favor. Hence, it affirmed the denial of an injunction against sale or lease of the house.

The amended opinion deletes the original opinion's bizarre application of the first sale doctrine. Instead, it reached the same outcome (no injunctive relief) based upon its application of the four prong eBay test.

The first sale doctrine, which is codified at 17 U.S.C. § 109, provides that "the owner of a particular copy ... lawfully made under this title" can , "sell or otherwise dispose of the possession of that copy ...".

The facts of the case are that the infringer obtained the design, not from the copyright holder, but from another home owner whose house was built according to the design, that the design contained a copyright notice, that a subcontractor warned the infringer that he would be infringing the copyright, and that the infringer responded "They’ve got to find me, catch me first". That is, he was a willful infringer, and his copies of the design, and his house, were not "lawfully made".

Nevertheless, the analysis of the Court of Appeals in its original opinion was that the copyright holder (Phelps) was made whole by the award of a license fee ($20,000), and that the infringer (Galloway) stands in the position of lawfully licensed holder of a copy.

The Court of Appeals wrote in its original opinion that "By bringing an infringement action against Galloway, Phelps & Associates essentially sold him its interest in the house in exchange for the appropriate remedies under the Copyright Act. Once those remedies have been sought and a judgment has been rendered, the copyright holder loses his right to sell that particular manifestation of his copyright." The Court of Appeals relied upon the first sale doctrine, but read the phrase "lawfully made" out of the statute.

The just released amended opinion deletes all reference to the first sale doctrine.

Nevertheless, it still hints at something similar to application of the first sale doctrine, without calling it such. The Court of Appeals wrote that the copyright holder (Phelps) "is limited to the other relief provided in this case. Upon satisfaction of that relief, Galloway will be entitled to peaceful ownership of the house, with good and marketable title."

Also, the amended opinion, by applying the four prong eBay test, removes the argument that the Court created a per se rule that injunctive relief is not available for completed houses that are built according to unlicensed designs, or for all works that are based upon and infringe other works.

The original opinion did nothing to suggest that the holding only applied to architectural designs in homes. However, the Court of Appeals added some dicta in the amended opinion to suggest that a different conclusion regarding injunctive relief would be warranted in cases involving digital piracy in the movie and music industries.

It wrote in its amended opinion that "While granting an injunction to destroy an infringing article might be usual with respect to personal property, especially in the garden-variety music or movie piracy case, refusing to order destruction or the inalienability of property" is appropriate in the present case.

Thus, the Court of Appeals suggests that if someone makes counterfeit copies of music CDs or movie DVDs, is sued, and has a money judgment entered against him, then he cannot then assert that the remedy of an injunction barring sale of the counterfeit copies is no longer available. But what of downstream retailers of the counterfeit copies, or purchasers? Nor does the Court's dicta go beyond "garden-variety" counterfeiting. What of a new work, an unlicensed derivative work, whether movie, music, game, or software, that incorporates all or part of a copyrighted work? To what extent does the opinion in this case stand as authority for the proposition that if the infringer is held liable for money damages, he is then free to use, sell or distribute the infringing work?

This case is Christopher Phelps & Associates, LLC v. R. Wayne Galloway, et al., U.S. Court of Appeals for the 4th Circuit, App. Ct. No. 05-2266, an appeal from the U.S. District Court for the Western District of North Carolina, at Charlotte, D.C. No. CA-03-429-3, Judge Graham Mullen presiding. Judge Niemeyer wrote both of the opinions, in which Judge Motz and Judge Traxler joined.

More Court Opinions

7/10. The U.S. District Court (DC) issued an opinion [12 pages in PDF] in SEC v. Roberts, pertaining to venue in civil actions by the Securities and Exchange Commission (SEC). The defendant, Kent Roberts, is a former in house counsel for McAfee, a company that makes computer network security, anti-virus, and intrusion protection products. He worked in McAfee's Dallas, Texas, area offices. The Department of Justice (DOJ) brought a criminal case against him in the U.S. District Court (NDCal) in connection with his alleged backdating of stock options. The SEC brought a parallel civil action against him in the U.S. District Court (DC). He sought a change of venue for his civil action to the Northern District of California. The SEC opposed. The relevant section for the Exchange Act provides that venue lies where the defendant "transacts business". The only connection of this case to the District of Columbia is that the SEC has its headquarters in the District of Columbia, and that securities filings are made in the District of Columbia. The District Court granted his motion. This case is SEC v. Kent Roberts, U.S. District Court for the District of Columbia, D.C. No. 07-407 (EGS), Judge Emmet Sullivan presiding.

7/5. The U.S. Court of Appeals (4thCir) issued its opinion [17 pages in PDF] in IntraComm v. Bajaj, affirming the judgment of the District Court. This is a contract, fraud, and minimum wage and overtime law dispute between a software developer and an information technology service provider that licensed his software, and hired him to sell licenses to its customers. Baback Habibi is one of the founders of IntraComm, Inc., an information technology company, and the creator of a software integration system named IC-WEL. He entered into agreements with DigitalNet Government Solutions, LLC, under which DigitalNet employed him, obtained a 15 month exclusive license to sell IC-WEL and an option to purchase IC-WEL, and agreed to pay Habibi commissions for sales of IC-WEL licenses. He sold none. Habibi filed a complaint in state court against DigitalNet, its successor, and various individuals alleging state law contract and fraud claims. The defendants removed the case to federal court. The District Court granted summary judgment to the defendants on the state law claims, and the Court of Appeals affirmed. However, Habibi also asserted violation of the Fair Labor Standards Act (FLSA), which is codified at 29 U.S.C. § 201 et seq., in connection with the failure to satisfy the minimum wage and overtime requirements of the FLSA. The defendants asserted that he was an exempt employee. The Department of Labor (DOL), which filed an amicus curiae brief, asserted that he was not. The Court of Appeals deferred to the DOL's interpretation of its ambiguous regulations, and affirmed the judgment of the District Court that Habibi was not an exempt employee, and that the defendants violated the FSLA. This case is IntraComm, Inc., et al. v. Ken Bajaj, et al., U.S. Court of Appeals for the 4th Circuit, App. Ct. Nos. 06-1516 and 06-1539, appeals from the U.S. District Court for the Eastern District of Virginia, at Alexandria, D.C. No. 1:05-cv-00955, Judge Claude Hilton presiding.

People and Appointments

7/10. First Data announced that Michael Cappellas will become its CEO, "following completion of the acquisition of the company by an affiliate of Kohlberg Kravis Roberts & Co." See, First Data release. He was CEO of MCI before its acquisition by Verizon. Prior to that he was CEO of Compaq Computer, and then President of Hewlett Packard, after HP acquired Compaq.

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Washington Tech Calendar
New items are highlighted in red.
Wednesday, July 11

The House will meet at 10:00 AM for legislative business. See, Rep. Hoyer's weekly calendar [PDF].

8:30 - 11:00 AM. The Software and Information Industry Association (SIIA) will host a conference titled "The Framework for Global Electronic Commerce: What We Got Right, What We Didn’t and What’s Next? 10th Anniversary of the Magaziner Report". The speakers will include Ira Magaziner, Stewart Baker (Assistant Secretary for Policy at the DHS), Jamie Estrada (Department of Commerce) and Michael Mandel (Business Week). Location: China Room, Renaissance Mayflower Hotel, 1127 Connecticut Avenue, NW.

POSTPONED. 10:00 AM. The House Commerce Committee's (HCC) Subcommittee on Commerce, Trade, and Consumer Protection will hold a hearing titled "From Imus to Industry: The Business of Stereotypes and Degrading Images  Hearing". The hearing will be webcast by the HCC. Location: Room 2123, Rayburn Building.

ROOM CHANGE. 10:00 AM. The House Commerce Committee's (HCC) Subcommittee on Telecommunications and the Internet will hold a hearing titled "Wireless Innovation and Consumer Protection". The hearing will be webcast by the HCC. Location: Room 2132, Rayburn Building.

10:00 AM. The Homeland Security and Governmental Affairs will hold a hearing titled "Strengthening the Unique Role of the Nation’s Inspectors General". See, notice. Location: Room 342, Dirksen Building.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Toshiba v. Juniper Networks, App. Ct. No. 2006-1612, a patent infringement case involving telecommunications equipment. Location: Courtroom 203, 717 Madison Place, NW.

10:00 AM. The Center for Democracy and Technology (CDT) and other groups will host a news conference to announce and explain the filing of a complaint with the Federal Trade Commission (FTC) against railway contractors alleging violation of the Fair Credit Reporting Act (FCRA) in connection with their alleged administration of criminal background checks on employees via data aggregators. The CDT stated in a release that "these FCRA violations are widespread and can lead to dire consequences for workers who have been improperly flagged by the data aggregators who provide the checks." This news conference will also be teleconferenced. To participate telephonically, call 800-377-8846. The participant code is #31100533. Breakfast will be served. For more information, contact David McGuire at 202-637-9800 x106. Location: CDT, 11th floor, 1634 I St., NW.

11:30 AM. The Business Software Alliance (BSA) and the Economist magazine's Economist Intelligence Unit (EIU) will host a telephonic news conference to announce and explain a report titled "IT Competitiveness Index". The BSA stated in a release that this report is ranks "64 nations on the extent to which each nation supports a thriving IT sector", based upon "25 indicators in six categories".Denis McCauley (EIU) and Robert Holleyman (head of the BSA). To obtain the phone number and code to participate in the conference, contact Karen Dorbin at Karen dot Dorbin at dittus com com or 202-715-1538. (The BSA and EIU will hold additional news conferences in Singapore and London.)

12:00 NOON - 2:00 PM. The Federal Communications Bar Association's (FCBA) International Telecommunications Committee will host a brown bag lunch. The speaker will be Helen Domenici (Chief of the FCC's International Bureau). For more information, contact LeJuan Butler at lbutler at unfoundation dot org or 202-887-9040. Location: Harris Wiltshire & Grannis, 1200 18th St., NW.

2:30 - 4:00 PM. The Department of State's (DOS) Advisory Committee on International Communications and Information Policy (ACICIP) will meet. The agenda includes a "report on recent bilateral discussions with China's Ministry of Information Industries and with Mexico's Ministry of Communications and Transportation, as well as upcoming bilateral discussions with India's Ministry of Communications and Information Technology and with Brazil's Ministry of Communications; and also to report on recent developments regarding the President's Digital Freedom Initiative". See, notice in the Federal Register, June 14, 2007, Vol. 72, No. 114, at Page 32939. Location: Loy Henderson Auditorium, Harry Truman Building, 2201 C St., NW.

Day one of a two day event hosted by the Federal Trade Commission (FTC) titled "Spam Summit: The Next Generation of Threats and Solutions". See, FTC notice and Spam Summit web page. Location: FTC's satellite building conference center, 601 New Jersey Ave., NW.

Thursday, July 12

The House will meet at 10:00 AM for legislative business. See, Rep. Hoyer's weekly calendar [PDF].

10:00 AM. The Senate Judiciary Committee (SJC) may hold an executive business meeting. The agenda again includes consideration of S 1145 [LOC | WW], the "Patent Reform Act of 2007", and consideration of the nominations of William Osteen (to be a Judge of the U.S. District Court for the Middle District of North Carolina), Martin Karl Reidinger (USDC, WD North Carolina), Timothy DeGiusti (USDC, WD Oklahoma), and Janis Lynn Sammartino (USDC, SD California). The SJC rarely follows its published agenda. See, notice. Location: Room 226, Dirksen Building.

10:00 AM. The Senate Commerce Committee (SCC) will hold a hearing titled "Number Portability". See, notice. Location: Room 253, Russell Building.

12:00 PM - 1:30 PM. The DC Bar Association will host a panel discussion titled "Dual-Use Export Control Regulations For China". The speakers will be Mario Mancuso (Under Secretary of Commerce for Industry and Security), Matthew Borman (Deputy Assistant Secretary for Export Administration), Peter Lichtenbaum (BAE Systems, Inc.), and Mary Peters (Hogan & Hartson). See, notice. For more information, call 202-626-3463. The price to attend ranges from $5 to $35. Location: Wiley Rein, 1776 K St., NW.

12:30 - 2:00 PM. Frontline Wireless will host a panel discussion titled "Wireless Broadband Nation: Yes or No? Public Safety-Private Partnership for 700 MHz Spectrum: ‘Last Chance’ Auction For First Responders and Innovation". RSVP to Kari DiPalma at kd at ftidc dot com. Sandwiches will be served. Location: Holeman Lounge, National Press Club, 529 14th St., NW.

Day two of a two day event hosted by the Federal Trade Commission (FTC) titled "Spam Summit: The Next Generation of Threats and Solutions". See, FTC notice and Spam Summit web page. Location: FTC's satellite building conference center, 601 New Jersey Ave., NW.

CANCELLED. The Forum on Technology & Innovation (FTI) might host a forum. The FTI has a history of advertising events, and then canceling them without notice.

Friday, July 13

The House will meet at 9:00 AM for legislative business. See, Rep. Hoyer's weekly calendar [PDF].

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Data Encryption v. Microsoft, App. Ct. No. 2006-1603, a patent infringement case. Location: Courtroom 201, 717 Madison Place, NW.

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) regarding its Draft Special Publication 800-46 Version 2 [44 pages in PDF] titled "User's Guide to Securing External Devices for Telework and Remote Access".

Monday, July 16

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) regarding its collection of data on broadband deployment. This NPRM is FCC 07-17 in WC Docket No. 07-38. See, notice in the Federal Register, May 16, 2007, Vol. 72, No. 94, at Pages 27519-27535.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its Second Further Notice of Proposed Rulemaking (2ndFNPRM) [26 pages in PDF] in its proceeding titled "Carriage of Digital Television Broadcast Signals: Amendment to Part 76 of the Commission's Rules". The FCC adopted this item on April 25, 2007, and released it on May 4, 2007. This item is FCC 07-71 in CS Docket No. 98-120. See, notice in the Federal Register, June 6, 2007, Vol. 72, No. 108, at Pages 31244-31250.

Deadline to submit comments to the Copyright Office (CO) regarding its final list of stations listed in affidavits sent to the CO in which the owner or licensee of the station attests that the station qualifies as a specialty station. See, notice in the Federal Register, June 15, 2007, Vol. 72, No. 115, at Pages 33251-33252.

Tuesday, July 17

8:30 AM - 12:30 PM. The U.S. Chamber of Commerce will host an event titled "Going Beyond the Border: The Impact of Domestic Regulation on Global Markets". The speakers will include Deborah Majoras, Chairman of the Federal Trade Commission (FTC), who will speak at 10:30 AM on "Global Antitrust Enforcement". See, notice and agenda [PDF]. Location: Chamber, 1615 H St., NW.

10:00 AM - 12:00 NOON. The House Science Committee's Subcommittee on Technology and Innovation will hold a hearing on the Bayh-Dole Act. The witnesses will be Arundeep Pradhan (Oregon Health & Science University), Susan Butts (Dow Chemical), Wayne Johnson (Hewlett-Packard), and Mark Lemley (Stanford law school). Location: Room 2318, Rayburn Building.

Wednesday, July 18

RESCHEDULED FOR JULY 24. 10:00 AM. The Senate Judiciary Committee (SJC) will hold an oversight hearing on the Department of Justice (DOJ). Location: Room 216, Hart Building.

10:00 AM. The Federal Communications Commission's (FCC) Commercial Mobile Service Alert Advisory Committee will meet. See, FCC release [PDF]. Location: FCC, Commission Meeting Room, Room TW-C305, 445 12th St., SW.

11:45 AM - 2:00 PM. The AEI Brookings Joint Center will host a panel discussion titled "The Economics of Internet Advertising: Implications for the Google DoubleClick Merger". The speakers will be Thomas Eisenmann (Harvard), David Evans (LECG), Lorin Hitt (University of Pennsylvania), and Robert Hahn (AEI Brookings). See, notice. Lunch will be served. Location: AEI, 12th floor, 1150 17th St., NW.

12:30 PM. John Snow, the previous Secretary of the Treasury, will give a speech. Location: Ballroom, National Press Club, 529 14th St. NW, 13th Floor.

Deadline to submit reply comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) regarding FCC regulation of exclusive contracts for the provision of video services to multiple dwelling units (MDUs) and other real estate developments. The FCC adopted this NPRM on March 22, 2007, and released the text [19 pages in PDF] on March 27. See, stories titled "FCC Adopts MDU Forced Access NPRM" in TLJ Daily E-Mail Alert No. 1,556, March 26, 2007, and "FCC Releases MDU NPRM" in TLJ Daily E-Mail Alert No. 1,557, March 27, 2007. See also, notice in the Federal Register, April 18, 2007, Vol. 72, No. 74, at Pages 19448-19453. This NPRM is FCC 07-33 in Docket 07-51.