CONTRACTS & IP APPLIED TO THE INTERNET
The “internet” has changed the way we do business. As a result, wise business proprietors need to change the way they way their concepts of how to conduct that business with proper internet contracts and protection of their intellectual property rights.
- A WEB DESIGNER PARABLE
- INTERNET RIGHTS & LIABILITIES
- THE SIGNIFICANCE OF “MULTI-MEDIA?”
- JURISDICTION DERIVED FROM INTERNET TRANSACTIONS
- LEGAL CHECKLIST FOR WEB-SITE ISSUES
A. JUST THE FACTS MAAM
Kathy Klone is a web designer. She started in college creating web sites for friends and after a few years, she started getting noticed. Her specialty is creating web sites utilizing interactive multi-media web pages and interfaces. Her productions are quite exciting as she employs film, video, music, foley and graphics to create an interactive experience for the web discriminating browser. Her hardware / software configuration allows her to “capture,” store and manipulate visual and audio information from virtually any source. She can then manipulate this digital data in any number of ways to be used in her productions.
Recently, she has started to capture images and action clips the internet and from broadcast shows. She then uses these images in imaginative ways in her productions. In addition, she has utilized “Ripster,” an Internet audio program in addition to her audio “sampler” to “rip” clips of music and sounds to be used in her productions. In essence, her software allows her to digitize any sound or image that is available to her, to modify these files and then incorporate the modified files into her productions.
Note, Kathy does not like to give people bad vibes and feels that contracts with their “legalese” are confrontational. As a result, she does NOT have a web-designer contract which protects her in case of dispute with her clients, although she does burn sage anytime she receives a check from a new client.
One day a new client named Brent Bush Jr. contacts Kathy from Maine where he lives. Brent has seen some of Kathy’s work and wants to give Kathy a large retainer to create a “bomb” website. Brent has no real business but is filthy rich and is a “Star Wars” fanatic. He would dearly love it if Kathy could style the web site utilizing the Star Wars theme.
Needing the money for a down payment on her new house, she takes the job. She obtains images of Luke, Darth, Hans and Chewy from a on line broadcasts. She digitizes these characters and uses them in Brent’s website to help the web visitor to navigate the website. She also scans pictures from an “art” book she had in her library and uses the modified digital photographs as background scenery for the website and characters. She then “rips” the Star Wars Theme off the Internet and also digitizes some music clips from on-line music she bought by the new rap artist, Shady Fat Redux. She puts her heart and soul into the website and it instantly becomes an underground classic of the web. Later, mainstream media starts to give it considerable attention for its humor and its effects. One of the best pages uses images of Hans and Hoperah (a popular talk show host) who battle it out for the future of the universe using laser light swords.
B. THE PUNCH LINE
Unexpectedly, Kathy received a number of telephone calls. These include calls from:
- Faith, the attorney for Aardvark Art Publishing, the owner of the art images which Kathy used as background on Brent’s web site.
- Zenah, the attorney for Hoperah wondering how Hoperah’s likeness and voice were used without Hoperah’s permission. Zena also notes that Hoperah found her portrayal defamatory and claims that it has irreparably damaged Hoperah’s career.
- “Squire P” the attorney for Shady Fat Redux. Mr. P makes it clear in very colorful language that Kathy is related to a dog for using Mr. Redux’s music without a license.
- RtooDtoo, the attorney for a guy named George who claims ownership to the copyrights and trademarks to various “Star Wars” plot, characters and music.
Thereafter, a number of lawsuits were filed naming Kathy and Brent as Defendants. Brent, taking no responsibility for the design choices of the web site has also filed a cross-complaint against Kathy for breach of contract, fraud, negligence and indemnity. While Kathy lives in San Diego, California, these lawsuits are located in Bangor, Maine where Brent lives. Kathy is now famous but considering bankruptcy!
INTERNET RIGHTS & LIABILITIES
A. BRAVE NEW WORLD
It is indeed a “brave new world” when it comes to the “world wide web” and its effect on our lives. The US congress has gone so far as to find that “The Internet . . .offer(s) a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity. . . .” such that it is now the official “policy of the United States (1) To promote the continued development of the Internet . . .(and) (2) to preserve the vibrant and competitive free market that presently exists for the Internet and other interactive computer services, unfettered by Federal or State regulation.” See 47 U.S.C. § 230.
B. NO WILD WEST
Regardless, do not be fooled that the days of the Wild West have returned via your on-line connection. The very same code section makes it clear that “Nothing in this section shall be construed to limit or expand any law pertaining to intellectual property.” Intellectual property is that area of law dealing with Patents, Copyrights, Trademarks and Trade Secrets and anyone involved with the internet in any manner related to the conduct of business must become familiar with these concepts and how they affect their rights. Advances in digital technology have just made it all the easier to steal the creative products of others. Such creative products range from videos and music to digital images, computer software and trademarks stolen by “squatters” sitting on domain names.
This numbers are not small. An estimated 100 million people are using the internet worldwide and growing every day. As is often the case, the result of growth in value is a corresponding growth in illicit trade. The Software Publisher’s Association announced that worldwide losses to piracy of business applications software in 1993 was $7.45 billion. “To put that in perspective,” says SPA Research director David Tremblay, “the 1992 sales of recorded music in the United States totaled $9 billion.”
C. PROTECT YOUR PROPERTY
The bottom line is that the plugged in business proprietor must: (1) Become familiar with what exactly they own which constitutes protectable “intellectual property,” (2) Become familiar with what they must do to protect and defend these property rights, and (3) Make sure that they and their business associates employees know what constitutes theft of intellectual property belonging to others (so that they are not drawn into litigation through the negligent borrowing by persons for whom they are vicariously liable.) Failure to protect one’s property is the quickest way to lose it so: (1) Register your Copyrights (2) Register your Trademarks (3) Patent your Inventions, and (4) Keep your Trade Secrets – Secret!
The term “multi-media” often refers to a work that combines video, film, drawings, graphics, text, music and sound effects for presentation. The true significance of multi-media revolution is not found in the content but rather in the digital format employed. The digital format allows exact copies of audio-visual information to be made which are indistinguishable from the original. This advantage has another side – stealing “intellectual property” has never been so easy!
A. JURISDICTION BACKGROUND
- INTRODUCTIONThe power to render a valid personal judgment against a nonresident defendant is limited by the due process clause of the Fourteenth Amendment. As a result, “personal jurisdiction” is required whenever a Plaintiff seeks a judgment against an individual. The three traditional bases for personal jurisdiction are: (1) Service on a person physically present in the State of the action, (2) Domicile within the State, or; (3) Consent or appearance in the action. See Penoyer v. Neff (1877) 95 U.S. 714. Outside of the traditional basis for jurisdiction, due process allows a state to exercise personal jurisdiction over non-residents where “minimum contacts” exists between the non-resident and the forum state. “Minimum contacts” means that the relationship is such that the exercise of jurisdiction over the non-resident does not offend “traditional notions of fair play and substantial justice.” See International Shoe Co. v. Washington (1945) 326 U.S. 310, 316. California has the broadest form of a “long-arm” statute in that California courts may exercise jurisdiction over parties “… on any basis not inconsistent with the Constitution of this state or the United States.” CCP _ 410.10. See Sanders v. C.E.G. Corp. (1979) 95 Cal. App. 3rd 779, 783.
- GENERAL AND SPECIFIC JURISDICTION DEFINED. “General jurisdiction” is a broad form of jurisdiction that allows a court to decide any cause of action over the defendant, even if the defendant’s activity occurred outside of the state. A more limited form of jurisdiction is called “Specific” jurisdiction. Specific jurisdiction only allows a court to exercise jurisdiction over the defendant for a “cause of action” (a legal right) which arises from the defendant’s activities within, or directed at, the forum state.
- THE 9TH CIRCUIT (CALIFORNIA) TEST. The Ninth Circuit uses a three part test for specific jurisdiction: (1) “[t]he nonresident defendant must do some act or consummate some transaction with the forum or perform some act by which he purposefully avails himself of the privilege of conducting activities in the forum, thereby invoking the benefits and protections of its laws[;] (2) [t]he claim must be one which arises out of or results from the defendant’s forum-related activities[; and] (3) [e]xercise of jurisdiction must be reasonable.” Panavision Int’l, L.P. v. Toeppen (C.D. Cal. 1996) 938 F. Supp. 616. Also see Burger King Corp. v. Rudzewicz (1985) 471 U.S. 462, 477-478.
B. JURISDICTION APPLIED TO INTERNET TRANSACTIONS
- BACKGROUND. Personal jurisdiction remains an unsettled issue of law. Insufficient cases have actually been published which have fully considered the issues inherent in e-commerce which itself changes on an almost daily basis. When it comes to issues over the internet, the courts will predominantly consider the issue of “specific jurisdiction” and whether a mere transaction or series of transactions over the Internet is sufficient to subject the parties to “personal jurisdiction” in another and perhaps distant state.
- THE BASIC RULE – THE “ZIPPO” SLIDING SCALE. Zippo Dot Com, Inc. (W.D. Pa. 1997) 952 F. Supp. 1119. The ZIPPO court held that the constitutionality of exercising jurisdiction was “directly proportionate to the nature and quality of commercial activity that an entity conducts on the Internet.” Simply stated, on one end of this scale are “passive” web sites that merely advertise the Defendant’s business of presence. A web site that neither solicits transactions in other jurisdiction nor affirmatively causes an effect in another jurisdiction does not provide sufficient minimum contacts for a court to invoke jurisdiction. On the other end of the scale is an active web site which does produce sufficient contacts for personal jurisdiction. Such a web site would probably conduct repeated transactions with the forum state and affirmatively have an effect in that state. Between these two extremes is a grey area which is reviewed on a case by case basis. Yet the sliding scale:
- Must consider all “contacts” that may exist between the Defendant and the forum state including the non-internet activities.
- Differs depending on the nature of the Defendant’s activities. On the one end, contract cases (purely transactional disputes) receive the least amount of deference. On the other end, tort cases (defamation etc.) are given wide deference while infringement actions (trademark and copyright) are somewhere in between.
C. CONTRACTS ON THE INTERNET IN CALIFORNIA
- As previously noted, merely contracting with a resident of the forum state is insufficient to confer specific jurisdiction. Accordingly, cases which merely involve “doing business” with a California resident, without anything more, may not find jurisdiction. In Panavision Int’l, L.P. v. Toeppen (C.D. Cal. 1996) 938 F. Supp. 616, (a cybersquatter case) the court stated that:”It is important to note that the Court does not hold that Toeppen is ‘doing business’ in California via the Internet. Accordingly, cases such as Bensusan Restaurant Corp. v. King, 1996 WL 509716 (S.D.N.Y. 1996), CompuServe Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996), and Pres-Kap Inc. v. System One, 636 So.2d 1351 (Fla. Dist. Ct. App. 1994) are not analogous to the case before the Court. The issue in those cases was whether contacts with the forum state via the Internet (or, in Pres-Kap, via a computerized airline and hotel reservation system) were sufficient to confer specific jurisdiction.”In McDonough v. Fallon McElligott, Inc., et. al., Civil Case No. 95-4037 (S.D. Ca. August 5, 1996), the plaintiff argued that the defendant (a Minnesota advertising agency) was subject to personal jurisdiction in California solely because it maintained a World Wide Web site that was accessible in California. The defendant had no other ties to California. The court stated that “[b]ecause the Web enables easy world-wide access, allowing computer interaction via the web to supply sufficient contacts to establish jurisdiction would eviscerate the personal jurisdiction requirement as it currently exists; the Court is not willing to take this step.”
- Yet, this is not always the case and some courts are willing to find jurisdiction based upon an “active” web site. In Stomp Inc. v. NeatO LLC (CD Cal. 1999), the court made a distinction between a web site that merely advertises products but does not enable on-line sales. The court used the active passive test to find that a Connecticut business that maintained a commercial web site, which markets and sells its goods had reached out to avail itself of the benefits of California and could be sued here.
WARNING – IP LAWS DO APPLY TO THE INTERNET!
The great advances in the internet and digital media have resulted in situations that were not anticipated by the laws designed to protect intellectual property. [IP PAGE UNDER CONSTRUCTION]. The primary problem derives from the fact that the digital realm has made it possible, and in fact easy, as never before, to copy or steal, the creative work product of others. As a result, the law is experiencing growing pains. Yet, it would be wise to take the following two concepts to heart:
- JUST BECAUSE DIGITAL THEFT IS EASY DOES NOT MEAN THAT THE LAWS WILL NOT BE APPLIED BY THE COURTS.
- NAIVE NOTIONS OF FREEDOM AND CONSTITUTIONAL RIGHTS WILL NOT SAVE YOU – THEFT IS THEFT – BE IT A CAR OR A COPYRIGHT.
THE INTERNET RIGHTS CHECKLIST
(This list may be freely reproduced and distributed conditioned upon the above copyright and email address be left intact.)
Web-Site and multi-media design requires that the designer, the owner, and all persons involved consider the following issues:
A. GENERAL ISSUES
- Does someone OWN THE RIGHTS to the AUDIO AND VISUAL COMPONENTS? ARE YOU SURE? If so, you should obtain a written license for its use.
- WHAT RIGHTS? You must determine what rights are potentially at issue.
- ARE THERE EXCEPTIONS? Has the component at issue fallen into the “public domain” or is there an exception that would apply such as the “fair use” exception? ARE YOU SURE?
- REAL PEOPLE – WILL THE USE OFFEND? Is it possible that a person may find the use to be slanderous or defamatory? Are there recognizable persons or characters from whom a release should be obtained?
B. DOMAIN NAME ISSUES
- Have you checked availability of the domain name?
- Have you sought to “clear” the name by a trademark search?
- Would the name cause “confusion” with other sites or interests?
C. DESIGN ISSUES
- Do you have a written agreement specifying the ownership of the content?
- Who has right to, and access to, the final design products and the resources necessary for the purpose of correction and updating?
- Is original material deemed a work made for hire by an appropriate written document?
- Is UNORIGINAL MATERIAL cleared including the:
- Written Content
- Video / Film
- Characters / Real People
- Music / Sound
- Icons, avatars and other design elements
- Have you obtained a written guaranty of originality and /or clearance?
- Have you considered and researched installing a firewall?
- Have you considered “watermarks?”
- Do you have a security plan?
E. PRIVACY ISSUES
- Privacy issues for people using your web page?
- Privacy issues for your employees and email users?
F. CONTRACTS AND E-COMMERCE
- Do you have your contracts in place including:
- Production Contracts?
- E-Commerce Contract?
- Employment Contracts?
- Trade Secrets Contracts?
- Vendor Contracts?
- Do your contracts cover “Venue” issues? [SEE VENUE BELOW]
- Do your contracts have an Attorney Fee Clause?
- Do your contracts cover new advances in “electronic media?”
G. TRADEMARK ISSUES
- Do you intend to use Trademarks or Service Marks?
- Will you use your domain name as a Trademark?
- Will you seek a Federal Registered Trademark?
- Consider registration in non-U.S. territories?
- Do you have copyrightable material in your production?
- Have you applied for a Federal Copyright Registration for:
- Your Web Page Content?
- Software developed by you?
- Your Multi-Media Production?
- Do you have a plan to update copyright registration as changes are made?
I. LIABILITY ISSUES
- Can the content of your production possibly invoke a claim of any kind including defamation or slander?
- Can other people post on your site which might incur liability?
- Have you developed legal disclaimer notices?
- Do you risk liability based upon an automatic referral to a Web site which contains inaccurate or defamatory information?
- Have you observed regulations and laws such as rules affecting the export of encryption technology?
- Have you posted warnings against re-use of proprietary materials of site owner or third-party licensors?
- Have you added appropriate copyright, trademark, service mark and patent notices?
- Will your site contain what might be defined as pornography?
J. ADVERTISING AND PUBLICITY
- Do you have written authorization for “Linking” and “Framing” other web pages?
K. EMPLOYEES / CONTRACTORS
- Do you have confidentiality agreements with employees and independent contractors with access to trade secrets / proprietary information?
- Have you devised a system for training employees and independent contractors in the procedure for obtaining clearances?