Category Archives: Counterfeiting

Online Piracy and Counterfeiting: Ad Networks Adopt New “Best Practices Guidelines”

by Christina Frangiosa

On July 15, 2013, the US Intellectual Property Enforcement Coordinator (IPEC), Victoria Espinel, announced the adoption of best practices for online advertising, with an aim to reduce the influx of counterfeiting or pirating conduct. The IPEC explained that these practices are aimed at “reducing the flow of ad revenue to operators of sites engaged in significant piracy and counterfeiting.” Victoria Espinel, “Coming Together to Combat Online Piracy and Counterfeiting,” Office of Management and Budget (July 15, 2013). The participants in this program – at least at the outset, are 24/7 Media, AOL, Conde Nast, Google, Microsoft, SpotXchange and Yahoo! Id.   While supporting and encouraging initiatives like this, the IPEC also cautioned that these activities be undertaken in the context of other interests in the Internet marketplace:

“It is critical that such efforts be undertaken in a manner that is consistent with all applicable laws and with the Administration’s broader Internet policy principles emphasizing privacy, free speech, fair process, and competition. We encourage the companies participating to continue to work with all interested stakeholders, including creators, rightholders, and public interest groups, to ensure that their practices are transparent and fully consistent with the democratic values that have helped the Internet to flourish. We also encourage other participants in the online advertising space to consider adopting voluntary initiatives that protect ad networks, publishers, advertisers, creators, rightholders, and above all, consumers.”

Id. The IPEC’s blog post includes links to the public statements made by AOL, Google, Microsoft and Yahoo! about these best practices. A copy of the best practices themselves can be found here.

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White House Releases Second Joint Strategic Plan for IP Enforcement

by Christina Frangiosa

Today, the IPEC (Intellectual Property Enforcement Coordinator) announced that the White House has released its second Strategic Plan for IP Enforcement. The IPEC’s blog provides more information about what is included in the update: http://www.whitehouse.gov/blog/2013/06/20/intellectual-property-key-driver-our-economy. Among the myriad updates in this report are the following: Continue reading …

Court-Ordered Restitution Vacated in Criminal Copyright Infringement Case, Based on Lack of Relevant Evidence

by Christina Frangiosa

On November 9, 2012, the United States Court of Appeals for the District of Columbia Circuit (D.C. Cir.) vacated a district court’s decision to impose a restitution penalty against Defendant Gregory Fair (“Defendant Fair”) in favor of Adobe Systems in the amount of $734,098. U.S.A. v. Gregory William Fair, No. 09-3120, slip op. at 2 (D.C. Cir. Nov. 9, 2012) (appealing from Crim. A. No. 1:09-cr-00089-1 (D.D.C.) – Pacer login required). The D.C. Circuit concluded that the district court had abused its discretion by awarding restitution, when the government failed to meet its burden to prove the amount of Adobe’s losses.
 
The Mandatory Victims Restitution Act (18 U.S.C. § 3663A) (“MVRA”) – upon which this restitution award was based – provides that victims of certain crimes may be awarded restitution to compensate them for their actual losses that resulted from the defendant’s crime. In this case, however, the government only introduced evidence of what Defendant Fair’s actual sales were – and based its request for restitution on that amount. It did not introduce any evidence that Adobe Systems had lost sales as a result of this criminal activity, or that its sales were diverted to Defendant Fair.

Underlying Facts

Defendant Fair pled guilty to charges of criminal copyright infringement (18 U.S.C. § 2319, 17 U.S.C. § 506(a)(1)(a)) and mail fraud (18 U.S.C. § 1341), after spending more than six years (Feb. 2001-Sept. 2007) selling counterfeit copies of outdated Adobe software and upgrade codes on eBay, which allowed his customers to obtain full copies of the current versions of these programs at a fraction of the regular price. Opinion at 3. “For example, a customer could first buy a pirated copy of outdated PageMaker software and an upgrade code from [Defendant] Fair for around $125 and then pay around $200 to Adobe Systems to upgrade to the most current version. The total price paid, around $325, would be less than half of the retail price of the authentic up-to-date Adobe program (approximately $700).” Id. at 2.

According to evidence presented at trial of the completed eBay transactions that filtered through PayPal, “[Defendant] Fair received, and he admitted receiving, approximately $1.4 million from his sales of pirated software on eBay.” Id. at 3. When Defendant Fair objected to the restitution claim, he initially sought a reduction to $455,000, the amount which he had actually withdrawn in currency from the PayPal account. Id.
   
Following the plea agreement, the district court sentenced Defendant Fair to 41 months’ imprisonment and three years’ supervised release – and ordered the $743,098.99 restitution payment to Adobe Systems (the balance of the amount identified on the government’s spreadsheet, less the $24,367 that the Postal Service had already released to Adobe Systems). Id. at 5.

Defendant Fair’s counsel argued that Adobe Systems was capable of distinguishing between its regular customers, and those who sought upgrades as a result of Defendant Fair’s scheme, and instead “chose as a ‘corporate strategy’ to permit [Defendant] Fair’s customers to purchase upgrades but to give no tech support to Fair’s software.” Id. at 5. This suggests two things: 1) that evidence of lost sales could have been available if the government requested it; and 2) that Defendant Fair may have had an argument that Adobe had acquiesced by its conduct (in part) to the so-called “criminal scheme.”

However, the government did not introduce any evidence that Adobe lost any sales due to Defendant Fair’s criminal activities. Instead, the government presented a spreadsheet tallying Defendant Fair’s eBay sales and “unsubstantiated, generalized assertions of government counsel regarding Adobe Systems’ lost sales.” Id. at 11. When presented with the opportunity to present such evidence, the government attorney attempted to shift the burden set forth in the MVRA to the defendant, arguing that because he “created an potential uncertainty in calculating pecuniary harm by selling outdated counterfeit software.” Id. at 12. The government also argued that the lost-profits rationale “makes no sense in the present context because Adobe Systems no longer sells the versions of the software that Fair sold.” Id. The appellate court was unpersuaded.  

On Appeal

The appellate court reviewed the record – and particularly the absence of any evidence of Adobe Systems’ actual losses, and agreed with the analysis of a Tenth Circuit opinion that commented, “we are very skeptical of the implicit suggestion that customers’ purchase of a certain number of copies of low-priced counterfeit software proves that those customers would have agreed to purchase the same number of copies from the legitimate seller for many times more.” Id. at 11 (quoting United States v. Hudson, 483 F.3d 707, 710 (10th Cir. 2009)) (internal quotations omitted). The Fair court also concluded that the government’s evidence in support of its claim for retribution was “merely speculative.” Id. at 12.

The appellate court also recognized that there were other avenues of recovery of restitution: specifically, under the “actual damages” provision for copyright infringement, the copyright owner can recover both actual damages and “any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.” 17 U.S.C. § 504(b). These damages were not claimed in this (criminal) case.

Finally, the appellate court also considered whether a remand of any degree was warranted in this case – and concluded that it was not. The appellate court declined to give the government “‘a second bite at the apple’ absent special circumstances,” especially in light of the fact that the government had the explicit opportunity to introduce this type of evidence, and had declined to do. Id. at 15-16.

In summary, it appears that the prison sentence (and 3 years of supervised release) remains, but that the award of restitution alone has been vacated.

Rosetta Stone and Google Announce Settlement of Trademark Infringement Suit

by Christina Frangiosa

On Oct. 31, 2012, Rosetta Stone and Google announced their decision to settle their trademark infringement case relating to the sale and use of AdWords in Google’s search engine results. Rosetta Stone’s 10/31/12 Press Release.  The companies have agreed to work together to “combat online ads for counterfeit goods and prevent the misuse and abuse of trademarks on the Internet.” Id. The companies hope that by working together, they can “improve detection methods, and better protect from abuse brands like Rosetta Stone, advertising platforms like Google AdWords, and ultimately consumers on the Internet.” Id.
    
As a consequence of the settlement, the lawsuit Rosetta Stone Ltd. v. Google, Inc., Civ. A. No. 1:09-cv-00736-GBL-TCB (filed July 10, 2009) has been dismissed. Doc # 238 (Oct. 31, 2012) (Order and Stipulation to Dismiss), available on Justia. The complaint originally alleged claims of direct trademark infringement (15 U.S.C. § 1114(1)(a)); contributory trademark infringement; vicarious trademark infringement; trademark dilution (15 U.S.C. § 1125(c)(1)); and unjust enrichment.

Related Information

Congressional Joint Economic Committee Published Report on Impacts of IP Theft

by Christina Frangiosa

On August 6, 2012, the Joint Economic Committee issued its report on “The Impact of Intellectual Property Theft on the Economy.” (Press release; report). In summary, the report explains:

“IP infringement harms companies through lost revenue, the costs of IP protection, damage to brand, and decreased incentives to innovate because of potential theft.[FN3] Consumers are harmed when they purchase counterfeit goods of lower quality, some of which, such as counterfeit medicines, may pose health or safety risks. Governments lose tax revenue and bear enforcement costs. Decreased incentives to innovate resulting from IP infringement reduce economic growth, weaken the nation’s competitiveness, and decrease job creation.” (Report at 1)

Each of these items of harm are detailed in the report, which cites statistics about seizures by various government agencies, both U.S. and abroad. In addition, it singles out China as a major source of “pirated goods seized at the U.S. border.” (Id.)

The report also posits that small businesses are less likely to be able to combat such infringement, or actively enforce their IP rights, because they lack the resources to pursue enforcement actions.  The report explains that this conclusion derives directly from statistics about filing habits in judicial fora:  “Data on investigations initiated and completed by the U.S. ITC [International Trade Commission] show that while small businesses represent 79.0 percent of all businesses in the U.S., they comprise only 10.5% of firms filing complaints regarding intellectual property infringement.” (Id. at 3) (footnote omitted). Indeed, 78.9% of the firms that seek to enforce their rights through this mechanism are apparently large or public firms. (Id.)

Finally, the report concludes that the Intellectual Property Enforcement Coordinator (IPEC) is preparing a new Joint Strategic Plan on Intellectual Property Enforcement, which presents an opportunity to improve protections for U.S. IP rights holders. (The IPEC’s June 2012 Report on the Joint Strategic Plan (2 Year Anniversary Report) is the most current version available online.)