Friday, February 01, 2013

Online publication protected by first sale? or just fair use?

Stevo Design, Inc., v  SBR Marketing Ltd., 11-CV-00304 (D. Nev. Jan. 25, 2013)

Stevo sued SBR, mostly for copyright and trademark infringement. The court initially dismissed the complaint for lack of extraterritorial jurisdiction, but reversed itself on a Rule 59(e) motion and dismissed the complaint on other grounds.  Stevo sells pay per view and subscriptions to access “electronically-distributed sports betting reports, including compiled sports handicapping information.”  SBR, a foreign corporation with its principal place of business in Costa Rica, operates, which publishes sports betting and handicapping information. Its message board allows users to post messages related to sports betting and handicapping.  Defendant Daniele, a Virginia resident, uses SBR.  SBR encourages visits through “loyalty points,” which are awarded for logging on and for contributing content to the message board.  Extra points are available for well-thought-out “original” content.  Users can also give each other loyalty points.  Loyalty points may be redeemed for credits at offshore gambling websites, and they’re even redeemable for cash as long as they’re gambled with first.

Stevo’s complaint alleged 65 causes of action, including trademark infringement, copyright infringement, and Florida and Nevada state law claims based on the unlicensed publication of Stevo’s works.  For example, Daniele allegedly purchased sports analysis from Stevo and then posted it on the message board.

The court initally dismissed the complaint for want of subject matter jurisdiction because the copyright and trademark laws lack extraterritorial force.  It revised its opinion because Stevo identified a US user who uploaded reports.  On reconsideration, the court determined that it had the power to hear the case, but that the claims weren’t properly pleaded.

On copyright, plaintiffs’ inconsistent copyright ownership allegations failed to state a claim: it alternately alleged that it owned the copyrights and that its websites did, and a parent may not assert the intellectual property rights of its subsidiary in a copyright infringement action. Had ownership been properly pleaded, the court observed, the claims would likely be within the reach of the Copyright Act, as the Lanham Act claims were.

Turning to the Lanham Act claims, the court found that it had subject matter jurisdiction because Stevo successfully pleaded that the actual or intended recipients of the alleged infringing acts were in the US.  “SBR’s U.S.-centric  content--English-language analysis of American professional and collegiate sports--supports the  notion that the SBR website’s ‘intended audience’ was United States consumers.”  Plus, the complaint alleged that at least one member of the actual audience came from Virginia.

However, the court found that the first sale doctrine protected the uses here.  (Oh, dear.  While this is Stevo’s fault for trying to turn its copyright claim into a trademark claim, the first sale doctrine doesn’t actually protect against copying.  Fortunately, the court gets it right immediately thereafter.)  Under first sale, a reseller who doesn’t materially change goods isn’t an infringer.  The court found that the same went for service marks, “at least where the service can be sold and resold without change to its ‘nature, quality, and genuineness,’” citing Tumblebus Inc. v. Cranmer,  399 F.3d 754 (6th Cir. 2005).  (This case doesn’t seem to stand for that proposition as I read it, though a ticket reseller should succeed under first sale, and we should also perhaps conceive of the information here as a “good” rather than a service given how it’s being used—the court is certainly correct that the thing of value, the information, isn’t being changed; indeed, that is the gravamen of Stevo’s complaint, and the court identifies the doctrine as applying to the “handicapping reports,” not the service of providing reports.  While first sale isn’t right here, this does raise the point that one should not be able to evade the first sale doctrine by claiming infringement of a service mark for the service of selling the branded goods.)

Anyway, Stevo’s alleged marks were the proper names of its sports analysts.  SBR users allegedly bought “trademarked” sports analysis from Stevo and then resold it or gave it away on SBR’s message board, usually repeating the analysis verbatim.  These acts weren’t infringements. 

Stevo argued that SBR’s publication created initial interest confusion as to the legitimate source of the handicapping reports; they argued that an exception to first sale applied to use of a trademark that causes the public to believe that the reseller is an authorized seller or franchisee. This was based on Stevo’s loss in the organic Googlefight: “a search for Stevo’s marks plus the word ‘picks’ (i.e., ‘Steve  Budin picks’) returns results in which SBR’s website is ranked higher than any of Stevo’s.”  That wasn’t enough to trigger an exception to first sale.  Among other things, the complaint identified comments critical of Stevo’s analysts on the SBR message board, making confusion as to authorization or sponsorship “incredible.”  Nor could the complaint be read to allege that SBR used Stevo’s marks in its ads or that it held itself out has having special access to Stevo. 

Stevo did allege that SBR advertised that visitors could obtain PPV sports analysis for free, but it didn’t offer any factual support, and also that wouldn’t create the type of confusion required to defeat first sale.  “Consumers would need to believe that a Stevo-authorized retailer provided for free what Stevo itself charged for. In context, therefore, it is implausible that such advertisements create the impression that SBR is an authorized retailer of Stevo’s services.”  Also, there was no allegation of search engine manipulation by keyword buys or metadata, “conduct at the heart of initial interest confusion on the internet.”  (Paging Eric Goldman!)

Okay, take all this discussion about first sale and apply it to nominative fair use.  In the 9th Circuit, nominative fair use isn’t an affirmative defense but rather identifies uses that aren’t likely to confuse.  If a complaint fails to allege anything but nominative fair use, it fails to state a claim.  So here.  Users needed to use the marks to identify Stevo’s services and they used the marks only to do so. In addition, the message board criticism of Stevo’s analysists greatly reduced the likelihood of sponsorship/endorsement confusion.  Plus, the usernames under which the reports were posted (“Pin Fish,” “PepperMillRick,” “goldengreek,” etc.) didn’t suggest to visitors that either the posting user or SBR itself was the ultimate source of the report.  Initial interest confusion won’t defeat nominative fair use without “more indicia of endorsement” than alleged here, as in Abdul-Jabar v. General Motors Corp., where “the ‘commercial custom’ of celebrity endorsements in television commercials created an issue of fact as to whether the defendant’s commercial implied the celebrity plaintiff’s endorsement of its product,” or Downing v. Abercrombie & Fitch, where there was “an issue of fact with respect to endorsement when the mark was used to describe the defendant’s product rather than the plaintiff’s.”  Here there was neither a similar custom of sports analysts endorsing message boards nor use of Stevo’s marks to describe SBR’s own products or services.

Dilution and contributory infringement were therefore also out of the picture: nominative fair use does not dilute.  (Seriously?  Over 1000 paragraphs in the complaint and Stevo pled federal dilution, the kind that requires fame among the general consuming public of the US?  *cough*Rule 11*cough*.)  And without predicate acts of trademark infringement by SBR users, no contributory infringement either.

The court then turned to state-law claims against SBR and found them CDA § 230-barred. Under Roommates, SBR’s message board didn’t make SBR a developer of the content.  Indeed, §230 was specifically designed to overrule a court case holding a website responsible for a message posted on one of its message boards.  “‘[P]assive’ message boards with only occasional curation by message  board moderators warrant immunity under section 230.”  SBR’s practice of awarding loyalty points for posts didn’t make it a developer under the CDA.  Its encouragement wasn’t specifically directed at eliciting illegality.  Plus, SBR users could give loyalty points to each other; without reviewing every award, SBR couldn’t distinguish unlawful encouragement from perfectly legitimate encouragement, but § 230 was intended to relieve websites of that burden.  SBR’s policy of favoring original content also distinguished it from a developer.  Its allegedly “sporadic” attempts to eliminate infringing content “are precisely the type of thing that the CDA promotes,” by precluding liability based on imperfect monitoring.

The court then asked whether Stevo’s claims attempted to impose liability based on SBR’s status as a “publisher or speaker,” mindful of attempts to plead around that element.  The name of the cause of action isn’t important, but rather whether it inherently requires the court to treat the defendant as the “publisher or speaker” of  content provided by another.  Misappropriation of trade secrets did so: disclosure of trade secrets was publishing or speaking.  Unlawful acquisition of trade secrets would be a closer question in other circumstances, but the complaint didn’t allege any facts allowing the court to infer that the trade secrets were acquired in any other way than through users’ message board posts, making publication again critical.

Assuming, without deciding, that “misappropriation of licensable commercial property” was a cause of action in Florida, it was also CDA-barred.  Florida has a commercial misappropriation statute preventing the unauthorized use of “the name, portrait, photography, or other likeness of any natural person without consent,” but that would require Stevo to allege that it was authorized in writing to use those names, which it hadn’t done.  (And if it did, that would still be CDA-barred in the 9th Circuit, since it’s a state IP law.)  General INS v. AP misappropriation, assuming Florida recognizes the tort, was CDA-barred because the alleged competitive injury—that SBR gave away for free what Stevo sold—was impossible without characterizing SBR as a speaker or publisher.

Stevo then tried “contributory misappropriation of licensable commercial property.”  Arguably, this doesn’t require that SBR speak or publish, only that it induce others to do so.  But that theory would swallow CDA immunity.  SBR generally encouraged users to post, but it didn’t tell them what information they should or must include and didn’t encourage or enhance any infringing content.  That wasn’t enough. Stevo’s Florida civil theft claim also failed, since the only plausible mechanism by which SBR obtained or used Stevo’s property was through publication.

Tortious interference claims failed too: Stevo didn’t allege that SBR knew about specific contracts its users had with Stevo in a manner that was more than speculative. Plus, the only interference came again from publication.

Finally, the court found that it lacked personal jurisdiction over Daniele.  Stevo alleged that SBR paid Daniele to publish infringing material on SBR’s  message board, that Daniele’s publications relate to the “sports wagering” industry in Nevada, and that Daniele’s online statements were accessible in Nevada.  These were insufficient contacts to give rise to personal jurisdiction.  Even if Daniele was SBR’s paid agent, a principal’s contacts may not be imputed to the agent for purposes of personal jurisdiction.  Moreover, merely discussing sports betting on an online message board doesn’t provide the people talking with a reasonable anticipation of being haled into Nevada courts, even if such bets are only legal in Nevada.  Advertising alone is insufficient to support jurisdiction in these circumstances; simple publication couldn’t be either.  Of course, internet availability doesn’t establish purposeful direction either, especially where the alleged victims of the postings weren’t forum residents.  (I am curious why they filed in Nevada, especially given the governing 9th Circuit law.)

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