Final Fairness Hearing on Google Books Settlement Re-Scheduled for November 9

by Christina Frangiosa

On October 7, 2009, as scheduled, Judge Denny Chin held a status conference among the parties to the Authors’ Guild et al. v. Google, Inc. lawsuit to consider the settlement agreement reached between the parties. Jessica E. Vascellaro, “Google Gets Until Nov. 9 to Revise Book Pact,” The Wall Street Journal, Oct. 8, 2009. During this status conference, the Court set November 9, 2009 as the new date for the Final Fairness Hearing. Id.

As described in prior posts on this topic, October 7 had been the anticipated Final Fairness Hearing to consider the settlement agreement, but due to the overwhelming number of filings (both in opposition and in support of the settlement agreement), and particularly the Statement of Interest filed by the Department of Justice in which the DOJ raised several preliminary concerns on antitrust grounds to the settlement. In that brief, the DOJ made “suggestions” about changes that needed to be made to the settlement agreement in order to account for potential antitrust concerns.

As further reported previously, Plaintiffs requested a continuance (uncontested by Google) of the October 7 Hearing to permit negotiations among the parties and the DOJ to make sure that these concerns had been addressed. See Motion and Memorandum of Law in Support. While the Court granted the request for a continuance, he required the parties to attend a status conference instead. See Court’s September 24, 2009 Order.

White House appoints IP Enforcement Coordinator

by Christina Frangiosa

On September 25, 2009, President Obama appointed Victoria A. Espinel as IP Enforcement Coordinator (“IPEC”). This position was mandated by the Prioritizing Resources and Organization for Intellectual Property Act of 2008 (“PRO-IP Act”) S. 3325, Public Law No. 110-403, signed into law by President George W. Bush on October 13, 2008. See Current Status of the House Bill and of the Senate Bill.

The Act governs enforcement of IP infringement matters, particularly counterfeiting of copyrighted works and trademarks. With respect to trademarks, the Act increases civil penalties for trademark counterfeiting, including for direct as well as for certain types of contributory infringement and enhances criminal penalties for trafficking in counterfeit goods bearing others’ trademarks.

The IPEC is a cabinet-level position in the Executive Office focused on combating counterfeiting and IP infringement.

Under the Act, the IPEC will be an advisor only, not a prosecutor or other law enforcement officer. Specifically, the IPEC is charged with chairing an “interagency intellectual property enforcement advisory committee”, coordinating a Joint Strategic Plan (defined with more specificity in the Act) against counterfeiting and infringement, assist (when requested) in the implementation of the Plan, facilitate the issuance of policy guidance on “basic issues of policy and interpretation, to the extent necessary to assure the coordination of intellectual property enforcement policy and consistency with other law,” report to the President and to Congress about IP enforcement programs, report to Congress about the implementation of the Plan, and “carry out such other functions as the President may direct.” Public Law No. 110-403 § 301(b)(1).

Note that the Act was signed into law nearly a year ago. Under the precise terms of the PRO-IP Act, the Joint Strategic Plan described in the Act was due to be completed and submitted to various House and Senate committees no later than October 13, 2009 – in other words, two days ago!

However, given that the appointment has just been made for the IPEC, the various deadlines set forth in the act must be modified in some manner. It will be interesting to see how much the deadlines change.

For more information, see the following:

* White House Press Release, “President Obama Announces More Key Administration Posts,” September 25, 2009. The press release describes Ms. Espinel’s background and qualifications for the position.

* Official Summary of the Senate version of the bill (which ultimately was signed by Pres. Bush in 2008)

* Wikipedia’s description of the PRO-IP Act

* “FAQ: What to expect from a new IP cabinet position,” CNET News, Sept. 30, 2008 (just before the Act was signed into law).

Ms. Espinel’s nomination was received in the Senate on September 29, and the matter has been referred to the Senate Committee on the Judiciary. Nomination PN1027-111. It does not appear that a confirmation hearing has yet been scheduled.

Google Book Settlement Agreement to be Modified

by Christina Frangiosa

The parties to the Authors’ Guild et al. v. Google et al. Settlement Agreement currently pending before Judge Chin in the Southern District of New York asked the Court on September 22, 2009 to postpone the scheduled October 7th Final Fairness Hearing in order to permit further negotiations to reach a revised settlement agreement. Plaintiffs’ Memorandum In Support of Unopposed Motion to Adjourn October 7, 2009 Final Fairness Hearing And Schedule Status Conference, Civ. A. No. 1:05-cv-08136-DC, filed Sept. 22, 2009 (Docket Entry 729). Plaintiffs’ brief in support of their motion described the objections received to date as “hundreds of objections from individuals and corporate entities within and from outside of the United States, from the Federal Republic of Germany and the Republic of France, and from the Attorneys General of six states (Connecticut, Kansas, Missouri, Pennsylvania, Texas, and Washington).” Id. at 1. The new date requested was November 6.

In prior posts, I have discussed the implications of the settlement and objections and requests for approval that have been received by the Court. But, since my last posting, numerous additional objections had been filed – Judge Chin noted that over 400 filings have been made, including both objections and statements of support. Order, September 16, 2009 (Docket Entry 716).

Copyright Office’s Objection to Settlement Agreement

On September 10, Marybeth Peters, Register of Copyrights (at the U.S. Copyright Office) testified before the House of Representatives, Committee on the Judiciary raising the Office’s concerns the terms of the settlement, and the possibility that it creates a compulsory license to permit Google to digitize and distribute every work published in the U.S. through January 5, 2009. See Statement of Marybeth Peters, The Register of Copyrights Before the Committee on the Judiciary, September 10, 2009.

In particular, Ms. Peters summarized the Copyright Office’s concerns about the settlement agreement:

* Imposing a (Judicial) Compulsory License: Ms. Peters testified that the Settlement Agreement extended more broadly than merely forgiving Google for its past infringement and providing a remedy to those whom it harmed. Instead, the Agreement provided a mechanism to engage in further infringement without risk of liability, and affects a much broader base of copyright owners who were not represented during the original litigation. Id. ¶¶ 7, 12-18. Ms. Peters noted that compulsory licenses are typically “the domain of Congress” and argued that the Court should not be permitted to grant such a license in Google’s favor without giving Congress the opportunity to weigh in. Id. ¶ 15. Further, she testified that compulsory licenses “are generally adopted by Congress only reluctantly, in the face of a marketplace failure.” Id. Such marketplace failure is absent here.

* Treatment of Out-of-Print Works is Flawed: Under Copyright Law, the initial question of whether infringement has occurred focuses on whether the work in question is protected by copyright law. Whether the work continues to be available in the marketplace for purchase by interested buyers or whether it is no longer in-print is irrelevant to the analysis of copyrightability. Id. ¶ 19. Ms. Peters testified that the Settlement Agreement provided Google with certain default rules for dealing with out-of-print works, essentially allowing Google to copy, distribute and otherwise capitalize on them without liability until the rights holders ask Google to stop. Id. ¶ 20.

Ms. Peters also identified concerns over the treatment of orphan works, an issue that was the subject of draft legislation. She explained:

“Orphan works are works that are protected by copyright but for which a potential user cannot identify or locate the copyright owner for the purpose of securing permission. They do not include works that are in the public domain; works for which a copyright owner is findable but refuses permission; or works for which no permission is necessary, i.e. the use is within the parameters of an exception or limitation such as fair use. Many out-of-print works have rights holders who are both identifiable and locatable through a search.”

Id. ¶ 24. She further testified that approving the settlement as drafted would “make it exceedingly difficult for Congress to move forward” in finding a solution for orphan works, and would instead provide Google with an exemption from liability without finding a permanent solution for the problem of locating rights holders in order to obtain permission to use a work and make appropriate royalty payments for such use. Id. ¶ 23.

* Settlement Agreement Inappropriately Includes International Works that were Not Included in the Litigation: Ms. Peters outlined problems that foreign rights holders have, in that their works may be contained in a research library that has decided to partner with Google in this digitization project. Id. ¶ 27. “As a matter of policy, foreign rights holders should not be swept into a class action settlement unknowingly, and they should retain exclusive control of their U.S. markets.” Id. Ms. Peters noted that several foreign governments (particularly France and Germany) and foreign rights holders have alleged that the U.S.’s treaty obligations will be implicated by this Settlement Agreement, and perhaps even abrogated. Id. ¶¶ 29-31. While she did not concede that these obligations have been compromised in actuality, she testified that “it is a cause for concern when foreign governments and other foreign stakeholders make these types of assertions.” Id. ¶ 31.

Potential Benefits from a Digitization Project

Ms. Peters also lauded some of the more positive aspects to the Settlement Agreement that “should be encouraged under separate circumstances.” Id. ¶ 6. Specifically: 1) the creation of a book rights registry could improve the licensing structure and the ability to collect small royalty payments related to using works in digital form; 2) providing access to millions of titles to blind and print-disabled library patrons is “not only responsible and laudable, but should be the baseline practice for those who venture into digital publishing;” 3) enabling copyright owners and technology companies to share advertising revenues is a worthwhile business goal; and 4) increasing libraries’ abilities to offer digital access to works in their collection (and elsewhere) should be encouraged. Id. Despite these benefits, however, “none of these possibilities should require Google to have immediate, unfettered and risk-free access to the copyrighted works of other people.” Id.

U.S. Department of Justice’s Antitrust Concerns

In addition, on September 18, 2009, as scheduled, the US Department of Justice filed its brief outlining its concerns (including both antitrust and copyright concerns) with the terms of the settlement as currently drafted. Statement of Interest of the USA Regarding Proposed Class Settlement, Civ. A. No. 1:05-cv-08136-DC, filed September 18, 2009 (Docket Entry 720). The DOJ’s brief invited certain modifications and noted that the parties to the suit had already suggested that such a modified settlement agreement could be presented to the Court for approval. (Indeed, as noted above, the parties have now requested an extension of the Final Fairness Hearing in order to negotiate such a modified agreement.) Specifically, the DOJ’s brief made the following observations:

* A “global disposition of rights to millions of copyrighted works is typically the kind of policy change implemented through legislation, not through a private judicial settlement.” Id. at 2.

* The Settlement Agreement seeks to implement a “forward-looking business arrangement”, not merely a “settlement of past conduct.” Id. at 2-3 (note that this is the same concern raised by Ms. Peters, Register of Copyrights, as summarized
above).

* The Agreement would create a marketplace in which only one competitor (Google) would have rights in a “vast array of works” (especially orphan works). Id. at 3.

* The Agreement authorizes Google to obtain a license to “exploit copyrighted works of absent class members for unspecified future uses” – thus “essentially authorizing [with the agreement of the Book Rights Registry] the open-ended exploitation of the works of all those who do not opt out from such exploitation.” Id. at 7.

* The Agreement and the process of this case to date has provided inadequate notice to absent copyright holders that they must opt out of this Agreement or the terms will operate once approved to limit their exclusive rights in the future. See id. at 7-10.

Despite these concerns, the DOJ identified some benefits that could come out of this settlement negotiation, if the Agreement were to be modified in certain ways:

* The potential to create a “vibrant marketplace for the electronic distribution of copyrighted works, including in-print, out-of-print and so-called ‘orphan’ works.” Id. at 1.

* The potential to “breathe life into millions of works that are now effectively off limits to the public.” Id.

* The potential to “open the door to new research opportunities.” Id. And,

* The potential to increase accessibility to certain works by “users with print disabilities.” Id.

The DOJ’s brief also acknowledged that it provides only a preliminary analysis of its antitrust concerns, since the investigation continues. Id. at 3.

Current Status

On September 24, 2009, the Court accepted Plaintiffs’ unopposed motion for an adjournment (or continuance) of the October 7 hearing date, but did not set a new date for the Final Fairness Hearing. Order, September 24, 2009 (Docket Entry 735). The Court instead re-characterized the October 7 hearing date as a status conference, which the parties are required to attend, but at which the Court “will not hear argument from any objectors, supporters, or amici – including those who emailed requests to be heard – at this conference, though they are free to attend.” Id. at 2.

If you are interested in more information, you can review other items on the docket through Justia. (I haven’t compared this copy of the docket in depth against the official docket provided by Pacer (at a cost), but it appears to provide copies to most of the key docket entries I’ve reviewed over the last few weeks.)

Federal Circuit Clarifies Fraud Standard for Cancelling Trademark Registrations

by Christina Frangiosa

On August 31, 2009, the U.S. Court of Appeals for the Federal Circuit reversed the Trademark Trial and Appeal Board’s (“the Board”) 2007 decision cancelling Bose’s federal Trademark Registration for its mark WAVE in connection with “radios, clock radios, audio tape recorders and players, portable radio and cassette recorder combinations, compact stereo systems and portable compact disc players.” See In re Bose Corporation, Appeal No. 2008-1448, slip op. (Fed. Cir. Aug. 31, 2009). More importantly, however, the Court removed the threat of cancellation of a registered trademark if a registrant mistakenly included goods or services in its application (or requests for renewal) on which the mark was never used, or which the registrant had stopped using. The key to this analysis was the Court’s return to the “knowing” requirement in fraud pleadings, instead of the current “knowing or should have known” standard.

In the underlying case, the Board found that Bose had submitted a false sworn affidavit of continued use in support of the renewal of its Registration. Having found falsity, the Board further held that cancellation of this registration was appropriate because Bose “should have known” that the affidavit was false with respect to “audio tape recorders and players,” and was thereby attempting to defraud the Trademark Office by submitting it. (The Board recognized that the mark continued to be used in connection with the remaining goods covered by the Registration and only focused on the affidavit with respect to these few goods.) See Bose Corp. v. Hexawave, Inc., Opposition No. 91/157,315, 88 USPQ2d 1332 (TTAB Nov. 6, 2007). More information about the underlying case and the Medinol line of cases can be found at these prior posts.

In reversing the Board’s decision, the Court held that the Board erred when it relied on a lower standard to prove fraud in obtaining or maintaining a trademark registration as set forth in the Board’s 2003 decision in the Medinol case and when it cancelled the Registration for this mark in its entirety. The Court remanded the case for further proceedings to narrow Bose’s registration to “reflect commercial reality,” presumably to remove the goods on which the mark is no longer used in interstate commerce (specifically “audio tape recorders and players”). Bose, slip op. at 11.

Through this single opinion, the Court has accomplished that which practitioners have sought in various fora since 2003. See Medinol Ltd. v. Neuro Vasx, Inc., Cancellation No. 92040535, 67 USPQ2d 1205 (TTAB May 13, 2003). Specifically, while practitioners may generally agree that the Principal Register (cataloging active trademark registrations) should be culled periodically of those marks that are no longer in use in commerce, it has been argued that cancelling an entire registration – even longstanding and valuable registrations – as punishment for the registrant’s carelessness rather than permitting the registrant to amend the registration to remove outdated items was Draconian. See U.S. Patent and Trademark Office, Public Advisory Committee Meeting, Transcript at 137-42 (Feb. 20, 2009) (one panelist suggested that using cancellation for fraud as a punishment for these types of mistakes was akin to imposing the “death penalty” for a traffic violation).

Now, apparently, such amendments may be permitted.

Standard to Find Fraud on the Trademark Office

In order to support the cancellation of a registration based on the claim that the “registration was obtained [or maintained] fraudulently” (15 U.S.C. § 1064(3)), a court must find that the applicant “knowingly [made] false, material misrepresentations of fact in connection with his application.” Bose, slip op. at 3 (quoting Torres v. Cantine Torresella, S.r.l., 808 F.2d 46, 48 (Fed. Cir. 1986)). The Court confirmed that a “heavy burden of proof” is required and that the party seeking cancellation has to prove the allegation of fraud “to the hilt” through clear and convincing evidence. Id. (“There is no room for speculation, inference or surmise and, obviously, any doubt must be resolved against the charging party.”).

The Court focused on the Board’s conclusion that Bose “should have known” that its renewal affidavit was false and held that the Board’s prior opinion in the Medinol case changing the standard from “knew” to “should have known” (on which the Board relied in the Bose case) improperly reduced the standard to that of ordinary negligence. Id. at 5-6. In addition, finding that an applicant’s conduct constituted “mere negligence” or even “gross negligence” would be insufficient to meet the proof requirement for fraud. Instead, a subjective “intent to deceive” is an indispensible element of the claim. Id. at 6-8.

In sum, “a trademark is obtained fraudulently under the Lanham Act only if the applicant or registrant knowingly makes a false, material representation with the intent to deceive the PTO.” Id. at 7 (emphasis added). Fraud does not exist when false statements are “occasioned by an honest misunderstanding or inadvertence without a willful intent to deceive.” Id. at 10 (citations omitted).

Applying the Proper Standard to the Bose Registration

Applying the rule to the case at bar, the Court determined that this “intent to deceive” was absent and credited the testimony of Bose’s general counsel that he believed that repairing previously-sold tape players and shipping them back to consumers constituted “use in commerce” sufficient to support the renewal when he signed the affidavit in 2001. Id. at 9. While the Court declined to reach the issue of whether this belief was “reasonable,” the Court noted that no prior decision had been issued that found the repair/return activity to be insufficient to prove use of the mark in commerce. Id. at 9 n.2. As a result, Bose’s general counsel had not ignored prior legal precedent in submitting his affidavit.

Applying the Proper Standard to Prior “Fraud on the PTO” Cases

Not only did the Court confirm that a “knowing” misrepresentation and intent to deceive are required to support a fraud allegation, but it also clarified that “honest misunderstandings” or “inadvertence” in sworn statements made in connection with trademark applications or renewals do not constitute fraud in the absence of proof of a willful intent to deceive the Trademark Office.

This clarification is significant, particularly in light of the many decisions by the Board to cancel a registration or affirm the refusal of registration in reliance on the “should have known” standard articulated in its opinion in Medinol. One could argue that the Federal Circuit’s opinion in Bose effectively overturns many of these decisions.

Certainly, applicants could rely on the Bose opinion to seek to amend their registrations to reflect commercial reality where they can demonstrate that mistakes in their sworn statements about whether a mark is or continues to be used in commerce were inadvertent or the result of honest misunderstandings, a result which Medinol would have precluded.

Further Update: Google Book Settlement

by Christina Frangiosa

September 4, 2009 was the deadline by which any oppositions to the Google Book Settlement were to be filed. The hearing is still scheduled to proceed on October 7, 2009, and numerous non-parties to the settlement have requested the Court’s permission to attend the hearing and present their arguments. In a docket entry from September 2, however, Judge Denny Chin’s response to one request to appear appears as follows: “As for permission to speak at the hearing, the Court will address this question in a future order. We need to see how many requests there are to speak.” Authors’ Guild v. Google, Inc., No. 05-8136, Item No. 216 (9/2/09).

There have been numerous opt-out letters filed with the Court, as well as objections and requests for approval of the settlement. In addition to the individual authors or publishers who have filed their objections, numerous other groups have similarly filed seeking outright rejection of the agreement or at least critical modifications:

* Australian Society of Authors (Item Nos. 102, 111 in the Docket)
* A Japanese publishers’ association (Ryutaikyo, Tokyo) (Item No. 116)
* “500 crime writers from Germany, Austria and Switzerland” (SYNDIKAT) (Item No. 119)
* The Federal Republic of Germany (Item No. 179)
* Amazon.com (Item No. 206)
* The American Society of Media Photographers, Inc., Graphic Artists Guild, Picture Archive Counsel of America, North American Nature Photography Association and several individuals (Item No. 218)
* DC Comics (Item No. 238)
* Consumer Watchdog (Item Nos. 261, 263)
* Japan P.E.N. Club (Item No. 264)
* Canadian Standards Association (Item No. 272)
* Microsoft Corporation (Item No. 276)
* Connecticut Attorney General Richard Blumenthal (Item No. 278)
* Privacy Authors and Publishers (Item No. 281)
* Open Book Alliance (Item No. 282) – this is a group previously described in the docket as “a coalition of diverse organizations including Amazon.com Inc., The American Society of Journalists and Authors, The Counsel of Literary Magazines and Presses, Microsoft Corporation, The New York Library Association, Small Press Distribution, The Special Libraries Assocaition, and Yahoo! Inc., as well as the Internet Archive.” (Item No. 183)
* The French Republic (Item No. 287)
* Yahoo! Inc. (Item No. 288)
* The Internet Archive (Item No. 291)
* Lyrasis, Inc., Nylink and Bibliographic Center for Research Rocky Mountain, Inc. (Item No. 291)
* Free Software Foundation, Inc. (Item No. 293)
* Proquest LLC (Item No. 296)
* Songwriters’ Guild of America (Item No. 297)

Some have filed their requests for approval of the settlement, or at least registered their agreement with certain provisions or goals of the settlement:

* The American Association of People with Disabilities (AAPD) (Item No. 125)
* The United States Student Association (USSA) (Item No. 138)
* The United States Distance Learning Association (USDLA) (Item No. 139)
* Sony Electronics, Inc. (Item Nos. 148, 274)
* Antitrust Law and Economics Professors (Item No. 275)

** Please note that I have not read each of the submissions in depth – either oppositions or requests for approval – but have relied almost exclusively on the text in each docket entry to determine whether a party opposes or supports the agreement. I would encourage you to read the specific submissions of the parties that are of interest to you before reaching a more substantive conclusion than that they filed a letter, motion, memorandum of law or amicus brief in support or in opposition to the settlement.

Some of the submissions are very emotional and argumentative. Many are written by non-lawyers making arguments using persuasive or rhetorical language. Some have been filed in their native languages without an attached translation. (E.g., Letter from Dr. Else Maria Wischermann, filed in German at Item No. 110).

The recurring themes in these objections are: 1) the potential monopoly created in Google’s favor – at the very least with respect to orphan works, whose rights holders cannot be immediately identified; 2) the lack of any requirement of a reasonable search for the owner of an orphaned work before the scanning and distribution would occur; 3) indeterminate definitions of key terms – including those identifying which works would be covered by the agreement and the Book Rights Registry, and those that would not; 4) the blanket permission for Google to proceed with its scanning and monetizing project unless authors/publishers/other owners opt out; 5) the apparent permission given by an American court for Google to copy/scan/distribute/store digitally the works created and currently owned by foreign authors; and 6) Google’s ability to retain an apparently unreasonably high fee from each work.

Regardless of the pros and cons of the settlement reached in this case, it appears to have raised significant concerns on both sides. It is also clear that the number of parties who have requested permission to present their arguments to the Court during the hearing would be too numerous for the Court to entertain during a single day of argument. Unless the Court decides to extend the hearing over several days, the list of those attending and presenting their arguments orally undoubtedly will be limited.

Given the nature of the oppositions and support received thus far, this promises to be a very interesting hearing. One hopes that the decision the Court eventually reaches will balance effectively the equities of both the public at large (with the interest of being able to access as many creative and educational works as possible) and the copyright holders (who should be able to control the distribution and further use of their works, and be compensated reasonably for those who wish to access them). I look forward to reading the opinion.