Digital Media Lawyer Blog

It is common for internet contracts to include clauses permitting the website operator to make unilateral amendments. However, as discussed in our entry of March 31, 2009, these clauses are problematic. In many states, they can make other contract provisions subject to challenge as illusory.

This was the result in an April 15, 2009 ruling by a Federal judge in the Northern District of Texas, in Harris v. Blockbuster, Inc., a case involving the Blockbuster Online website, a site which lets users rent movies online. (fn 1) The plaintiff alleged that Blockbuster Online had violated the Video Privacy Protection Act by transmitting information about her video rental choice to Facebook. Blockbuster attempted to invoke an arbitration clause in its online contract with the plaintiff and brought a motion to compel arbitration.

The court's analysis was simple. It started by noting that under Texas law, a contract must be supported by consideration, or it is illusory and cannot be enforced. It then cited a similar case, Morrison v. Amway Corp in which the Fifth Circuit had found that an arbiration clause was illusory which had permitted Amway to "unilaterally modify all rules" with the only express limitation being that the rules had to be published before they could be enforced (but could still be enforced retroactively). (fn2)

The Blockbuster online contract contained the following clause:

Blockbuster may at any time, and at its sole discretion, modify these Terms and Conditions of Use . . . with or without notice. Such modifications will be effective immediately upon posting. You agree to review these Terms and Conditions of Use periodically and your continued use of this Site following such modifications will indicate your acceptance of these modified Terms and Conditions of Use. If you do not agree to any modification of these Terms and Conditions of Use, your must immediately stop using this Site.

The District Court found that the Blockbuster Online contract suffered from the same defect as the contract in the Amway case, because it gave Blockbuster the right to modify its terms and conditions, including the section that contained the arbitration clause, "at its sole discretion" and "at any time" and that all modifications would be effective immediately upon being posted on the site. Because Blockbuster could modify the terms of the arbitration clause at will, the arbitration provision was illusory. As a result, the Court denied Blockbuster's motion to compel arbitration. (fn3)

The court did give some indication of changes that could be made to save this clause: namely, it could preclude application of amendments to disputes which arose, or of which Blockbuster had notice, before the amendment.

The take-away from this decision is that care must be taken in deciding to include and in drafting a clause permitting unilateral amendment of a contract. Inartful drafting can cause the loss of the benefit of critical terms, such as occurred here. If you have questions about drafting or enforcement of an internet contract, please feel free to contact me at any time.

David D. Johnson is a business lawyer whose practice focuses on litigation and other issues relating to digital media and consumer electronics companies. David can be contacted at (310) 785-5371 or DJohnson@jmbm.com.

Continue reading "Texas Court Rules that Internet Contract Giving Website Owner the Right to Make Unilateral Amendments Is Illusory" »

A number of press reports have given the impression that the Colorado District Court's ruling in Golan v. Holder (fn1) means that that Federal laws reviving expired copyrights violate First Amendment protections on free speech. The actual ruling is far narrower.

In 1993, Congress enacted 17 U.S.C. Section 104A, to permit foreign authors whose copyrights had fallen into the public domain for technical reasons (such as by failing to renew the copyright with the U.S. Copyright Office) to restore their copyrights. Section 104A solely permitted "restoration" of copyright protection for works from "a nation other than the United States." (fn2) Section 104A was added after the United States joined the Berne Convention for the Protection of Literary and Artistic Works -- a treaty first enacted in 1886, but not joined by the U.S. until 1988. Article 18 of the Convention requires member nations to provide copyright protections to works by foreign authors so long as the term of protection in the country of origin has not expired as to the work.

The plaintiffs were U.S. artists who used works by foreign artists that had been in the public domain before 1994, such as Sergei Prokofiev's "Peter and the Wolf." The plaintiffs claimed that after Section 104A was enacted, they were subjected to higher performance fees, sheet music rentals and other royalties. In some cases, these costs were prohibitive. (fn3)

The Golan case was the brainchild of Stanford Law professor, founder and co-director of the Center for Internet and Society and Director of the Fair Use Project, Lawrence Lessig. The original complaint claimed that Section 104A shrunk the public domain and thereby violated the limitations on congressional power inherent in the Copyright Clause, and violated First Amendment rights to free expression. The Colorado District Court originally rejected these claims. However, on appeal, the Tenth Circuit found that a legitimate First Amendment claim existed and remanded the case for First Amendment analysis.

The basis for the Tenth Circuit's ruling was the U.S. Supreme Court ruling in Eldred v. Ashcroft (fn4), in which the Supreme Court stated that a Congressional act modifying copyright law might be subject to First Amendment scrutiny if it "altered the traditional contours of copyright protection." (fn5) While the Tenth Circuit could not find federal authority that explained the phrase "traditional contours", it concluded that the traditional contours of copyright protection included the principle that "works in the public domain remain there." (fn6) It based this on the notion that the general sequence is that copyrighted works has always progressed from "1) creation; 2) to copyright; 3) to the public domain" and that Section 104A changed this sequence. (fn7)

Continue reading "Golan v. Holder: Colorado Federal Court Finds that Federal Law Restoring Expired Copyright Claims of Foreign Authors Violates the First Amendment" »

Digital media and consumer electronics companies, like virtually all other industry sectors, are currently facing serious economic challenges. A common problem is that a major customer suddenly announces that it is in economic distress and has, or intends shortly, to file for bankruptcy protection.

I recently wrote an article that outlines strategies a supplier can take to minimize its losses in this situation. It is entitled "When It's Too Late: how to minimize losses when your U.S. customer files for bankruptcy", and was published in the April 2009 edition of APlus -- the official monthly of the Hong Kong Institute of Certified Public Accountants. While I wrote this article for an Asian audience, the principles would apply to any business dealing with a customer who has or is likely to file for bankruptcy in a U.S. court. You can view this article by clicking here.

I frequently represent businesses in Asia and Europe in litigation in U.S. courts. For example, I recently obtained a Federal Court judgment for $2.5 million, plus attorneys fees and costs, for an Asian public company, in a case involving contract and business tort claims.

David D. Johnson is a business lawyer whose practice focuses on litigation and other issues relating to digital media and consumer electronics companies. David can be contacted at (310) 785-5371 or DJohnson@jmbm.com.

On April 9, 2009, in a lightly attended session, 16 members of the French Senate rejected La Loi Hadopi (Haute autorité pour la diffusion des œuvres et la protection des droits sur l'internet, or "HADOPI"). This law would have required internet service providers to monitor their subscribers' use of copyrighted works and impose "three strikes and you're out" penalties under which a repeat offender would lose his internet access for up to a year. The law also would have created a commission to monitor compliance with the law and deal with disputes.

Critics of the bill have argued that the proposed sanctions would be ineffective, because a user could regain internet access by simply creating a new account name.

In the post-mortem on the defeat of HADOPI, most commentators have cited as the primary reason for the defeat a provision that would have required a booted user to continue to pay the ISP for service he was now prohibited to use. The French Socialist Party, whose members were responsible for the defeat in the Senate, have now called on supporters of HADOPI to concede defeat. However, most commentators expect a new version of the bill to be introduced shortly.

From the perspective of a copyright holder, the HADOPI concept holds promise for controlling infringement A number of other countries are watching developments on this bill closely, and have considered or are considering similar legislation.

David D. Johnson is a business lawyer whose practice focuses on litigation and other issues relating to digital media and consumer electronics companies. David can be contacted at (310) 785-5371 or DJohnson@jmbm.com.

U.S. copyright-holders seeking to prevent illegal file-sharing have multiple remedies at their disposal, including the right to bring civil copyright infringement suits against downloaders and file-sharing sites, digital rights management technologies, and price and value competition. While each of these strategies is useful, each has limitations and none has been effective at compensating copyright holders for the massive quantity of illegal downloading that is currently occurring.

Another weapon in a copyright holder's arsenal are Federal laws which criminalize copyright infringement and related activities. Penalties for infringement can be severe, including prison sentences of up to 10 years for reproduction or distribution of multiple copies of copyrighted works. (fn1) On October 13, 2008, President Bush signed the Intellectual Property Act of 2008, or the "Pro IP Act." This Act beefed up Federal prosecutorial powers by removing barriers to criminal copyright enforcement, such as the requirement of copyright registration or pre-registration before suit, (fn2) and increasing the types of activities subject to criminal prosecution, to now include transshipment and exportation of goods with counterfeit trademarks. (fn3)

The portions of the Pro IP Act with the greatest potential for reducing copyright infringement were its enforcement provisions. The Act called for the creation of an Intellectual Property Enforcement Coordinator ("IPEC") -- or IP Enforcement "Czar." (fn4) The Czar would attempt to coordinate the enforcement efforts of numerous federal agencies through chairing an interagency "property enforcement advisory committee" and developing and assisting the agencies in implementing a joint strategic plan against counterfeiting and infringement.

The Pro IP Act also called for the FBI to hire "at least 10 additional operational agents" to support its Computer Crime and Intellectual Property Section, and to "ensure that any Computer Hacking and Intellectual Property Crime Unit in the Department of Justice is supported by at least 1 agent" of the FBI.

Continue reading "Federal Government Puts Baby Teeth into Enforcement of Criminal Copyright Infringement Laws" »