Adobe sued Christenson and his now-defunct corporation,
Software Surplus, for copyright and trademark infringement based on
unauthorized sales of legitimate copies of Adobe software that Software Surplus
bought from third parties. And then
Adobe had some trouble. Defendants
counterclaimed against Adobe and third-party defendant Software &
Information Industry Association (“SIIA”), the “principal trade association for
the software and digital content industry,” for various business torts based on
a SIIA press release announcing the filing of six “software piracy” lawsuits on
Adobe's behalf against various online sellers of Adobe software, including plaintiffs.
The magistrate judge granted defendants’ motion to preclude
Adobe and SIIA from using various contracts/license agreements that it had
failed to identify in its Rule 26(a) disclosures or to produce. Defendants moved to strike from Adobe and
SIIA's briefs and exhibits “all documents covered by the order, as well as all
factual assertions, references and arguments that relate to Adobe's licensing
agreements with its distributors and users.”
Adobe and SIIA argued that the discovery order didn’t preclude testimony
from their declarants or use of documents for limited or illustrative purposes,
including as exemplars to illustrate the testimony of witnesses concerning
Adobe's licensing agreements. No go. “[U]nder the best evidence rule, which
Adobe and SIIA fail to address, the licenses themselves are required to prove
their terms and, by extension, their legal effect.” Motion to strike granted. (I skip over defendants’ objections to the
proof of validity of the copyrights and trademarks at issue, but apparently
Adobe’s submissions of registration certificates were at least questionable
there too, though of course that’s not vital for trademark.)
With that out of the way, Adobe had nothing
left. It argued that defendants violated
Adobe’s distribution right through their online sales, and that first sale was
inapplicable because (1) the licenses meant that there had been no first sale,
and (2) some of the products at issue were manufactured outside of the US. (Note that if Kirtsaeng goes as the publishers want it to, you will be hard
pressed, no pun intended, to find domestic manufacture of copyrighted works for
this very reason.) Defendants pointed
out that, without the licensing agreements, Adobe couldn’t prove that it
licensed rather than sold its products, and argued that Adobe hadn’t met its
burden of proof to show that the products were manufactured outside the US
(and, as the Ninth Circuit holds, not first subject to a voluntary/authorized
domestic first sale).
So the case turned on the burden of proof. The Ninth Circuit hasn’t explicitly addressed
who has the burden of proof on first sale.
The legislative history suggested that the defendant bears the burden of
at least proving “whether a particular copy was lawfully made or acquired,” based
on the idea that burdens shouldn’t be put on litigants to establish facts
particularly within an adversary’s knowledge.
However, “a defendant's production of evidence that the plaintiff made
first sales of the copies in question, or that the defendant acquired his
copies from a legitimate source, can shift the burden of production to the
plaintiff to trace title backward to an illegitimate acquisition.”
Here, it was uncontroverted that defendants “lawfully
purchased genuine copies of Adobe software from third-party suppliers before
reselling those copies.” Adobe didn’t
contend that defendants’ purchases were unlawful or that the copies were not
genuine. Thus, the copies were lawfully
made and acquired.
The benefits of first sale are limited to owners, not licensees, and the Ninth Circuit has said that a software user is a licensee “where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user's ability to transfer the software; and (3) imposes notable use restrictions.” Adobe argued that it only licensed, never sold, copies. But there was no admissible evidence in the
record on that point. Examination of the
licenses would be necessary to determine whether Adobe’s terms satisfied the
Ninth Circuit’s test (which is phrased entirely in the affirmative, suggesting
something about the proper allocation of the burden). “[T]he
copyright holder should bear the burden of producing evidence to establish that
it retains title in and only licenses the copies it sells because any restrictions
on ownership, transfer and use affirmatively imposed by the copyright holder in
its dealings with its distributors are particularly within the copyright
holder's knowledge.”
As for foreign manufacture, there were equally fatal problems. Among other things, Adobe
failed to specify which copies
defendants sold weren’t made in the US, and for first sale purposes each copy is distinct. It only presented evidence about one copy, but
that evidence only addressed where the software was authorized for distribution, not
where it was made. If it was made
here and came back in a round trip, first sale applied. Summary judgment for
defendants.
Unsurprisingly, the trademark claims proceeded
similarly. The multifactor test doesn’t
apply in nominative fair use cases. When
the defendant shows that it was using the mark to refer to the trademarked
good, the burden shifts to the plaintiff to show that the use wasn’t nominative
fair use. This Adobe could not do.
Given occasional discussion about what the “how much” factor
of New Kids really means, the court’s
rejection of Adobe’s bad argument on this point is worth noting: Since Adobe’s
products have multiple marks on them, Adobe argued that defendants could have
identified them using only some of Adobe’s marks and not others. “The
use of a trademark need not be absolutely necessary. It is sufficient that the defendants ‘needed
to communicate’ that they were offering Adobe software for sale and that using
Adobe's marks accomplished this goal.”
And on the third factor, the use didn’t imply sponsorship or endorsement
“to a reasonably prudent consumer in the online marketplace,” the Tabari standard. “Indeed, the very domain name—softwaresurplus.com—from
which Defendants sold Adobe software would notify a reasonably prudent online
consumer that Defendants were merely resellers of ‘surplus’ software.”
Adobe argued that nominative fair use didn’t apply because
defendants engaged in false advertising about the versions or features of the
software it was selling. The court
deemed that to be “mixing claims.” While
these alleged misrepresentations might support a false advertising claim, Adobe
failed to allege false advertising in the complaint, even though it then moved
for summary judgment on its false advertising claims. (Adobe apparently not only didn’t use the term “false advertising”
in the complaint, it didn’t even allege misrepresentations about features or
versions, only “use [of] images confusingly similar or identical to Adobe's
Trademarks” and alleged confusion or deception “concerning ... source and
sponsorship” or “affiliation, sponsorship, endorsement or approval.”) False advertising is distinct from confusion
over sponsorship or endorsement by the TM owner. “Adobe has not alleged that Defendants used
its marks to falsely identify the origin or make of Adobe software, and it has
failed to produce evidence that the use of its marks created any likelihood of
confusion regarding sponsorship or endorsement.” Summary judgment for defendants (and against
Adobe’s “non-existent claim”).
Adobe’s day didn’t get better on the
defamation/disparagement/etc. counterclaims.
SIIA’s press release, which indicated that SIIA had filed six “piracy”
lawsuits on behalf of its member Adobe, called defendants “Software Pirates”
and “Fraudulent Online Venders” who “swindled both consumers and Adobe by
illegally copying or selling” Adobe's software and “knowingly engag[ed] in
copyright infringement through the fraudulent sales of Adobe software.” It said that defendants “either sold
infringing copies, including counterfeit versions, or illegally sold
educational and OEM versions without authorization.”
Adobe and SIIA moved for summary judgment, claiming that the
statements were truthful/opinion; that the statements were privileged; that
defendants weren’t injured; and that Adobe couldn’t be liable because it didn’t
draft or publish the press release. The
court disagreed.
As to truth, those arguments were derivative of the merits
of the infringement claims, which had been resolved against Adobe. (And frankly, conflating “unauthorized sales
of legitimate software” with “unauthorized copying” is inconsistent with the generally
recognized meaning of “piracy,” as much as SIIA would like to change that.) Adobe couldn’t prove truth. (Hmm. An interesting First Amendment question: suppose you engage in such litigation misconduct that you're subjected to discovery sanctions preventing you from presenting your evidence of truth to counter plaintiff's evidence of falsity. Does the First Amendment prevent this type of discovery sanction? What if it's just incompetence, not deliberate abuse of the discovery process? Just how far does the court's ability to protect its own processes go in a defamation case?)
Adobe and SIIA argued that the statements that defendants
“swindled both consumers and Adobe by illegally copying or selling well-known
Adobe software products,” and that “Software that seems too cheap to be
legitimate probably is not” were nonactionable opinion. The first statement wasn’t just opinion: a
reasonable person would be likely to understand it as a statement of fact, and
even if it were ambiguous that would be a matter for the jury. Likewise, the second statement, in context
with the other parts of the press release, could be understood as an implicit
false statement of objective fact that defendants’ products were not
legitimate. And the remaining statements challenged weren’t opinion either.
Nor were the statements conditionally privileged as
statements made in good faith on a subject matter in which they had an
interest. Even if Adobe and SIIA could
show good faith/interest in the subject matter, they didn’t even try to show
that they made the statements to a person with a corresponding interest or
duty, a necessary element of this conditional privilege. “Indeed, it would be
difficult, if not impossible, to do so, as the communication here was a press
release posted on the internet for widespread dissemination.” Nor did the litigation privilege (assuming
the California version applied) protect the press release. That privilege allows parties to inform third
parties of the pendency of litigation, not to to beyond the allegations in the
lawsuit by labeling defendants as swindlers, fraudsters, and pirates. “[S]uch ‘litigating in the press’ that bears
no ‘functional’ connection to the litigation is not immune, even under
California's expansive litigation privilege.”
On injury, Adobe and SIIA made various arguments, including
that there couldn’t be general damages because defendants didn’t request a
correction, and that defendants' suppliers stopped doing business with them
because of the litigation, not because of any defamatory statements in the
press release. Again the court
disagreed. On the first, the relevant
Nevada statutory provision limiting general damages requires that a correction
be demanded only for “the publication of a libel in a newspaper, or of a
slander by radio or television broadcast,” which didn’t happen here. Defendants sued the non-media sources of the
internet press release, not media outlets that then reported on the story. “Neither Adobe nor SIIA is a newspaper
publisher or radio or television broadcaster, and the statute, enacted in 1969
and last amended in 1975, neither addresses in its text nor could contemplate a
non-media entity's dissemination of information over the World Wide Web.” Thus, defendants weren’t limited to special
damages for failing to request a correction, and since the statements were
defamatory per se no proof of special damages was required.
Adobe tried to throw SIIA under the bus, arguing that SIAA “independently
developed the concept for, drafted, approved and published the press release,” which
contained no statements by Adobe or its personnel. But disputed issues of material fact
precluded summary judgment on this basis.
The lawsuit was filed in Adobe’s name, but the press release issued two
weeks later states that SIIA acted “[o]n behalf of SIIA member Adobe Systems
Incorporated” in “investigat[ing] and fil[ing]” this lawsuit and five others. Other
record evidence showed that SIIA's representation of Adobe's interests was not
unique to this lawsuit; SIIA regularly acts on behalf of Adobe in investigating
and suing alleged infringers. It would
be reasonable to infer that SIIA acted as Adobe’s “investigator, prosecutor and
spokesperson.” “Also, Adobe's blanket denial of any active participation
regarding the press release is belied by its own evidence, which establishes
that the press release was sent to Adobe for review before being issued and
that SIIA and its public relations firm may have made revisions in response to
feedback from Adobe.” SIIA’s lead role
didn’t mean that Adobe wasn’t a material participant or otherwise involved
enough to be liable.
Comment: I wonder if Adobe’s lawyers have contacted their
insurers.
4 comments:
This one is very interesting. I have a first hand experience with this aggressive group. Does it appear that they've changed direction to improve their chances on succeeding in future cases of this issue?
Anonymous, I don't have further information, but there were some obviously correctable issues in this litigation that lead me to doubt that Adobe will see this as a reason to change course in terms of asserting rights to stop resales.
Rebecca, I admire your quick response to my comment.
Is there any entity or forum you would suggest to get a little more of a layman's breakdown on some of these legal terms?
And I would imagine that this defendant had to retain counsel for such a detailed defense and wonder what the difference would be between legal fees and the amount being sought by these plaintiffs.
As mentioned, I recently received one of these demands for a one time incident and can't help but wonder if it would end up more advantageous to seek a negotiated settlement (which still wouldn't be affordable) and make it go away.
Anonymous, you should really consult a lawyer in your jurisdiction if you have specific questions, including about fees, which can vary a lot. If you want to read up on first sale, you might look at what's been posted on ssrn.com, but I don't know how layperson-friendly that will be.
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