Avoiding a Fair Use Fiasco


The internet is littered with millions of images – taken by professional and amateur photographers alike, that contain NO identification of the author of the image. In part, this may be because it is not known, and in part it could be that the “meta data” in the image – which if done professionally will typically have the author’s name and the claim of copyright embedded as text inside the file (known as EXIF data) – is stripped off.

A recent decision in the 3rd Circuit (Pennsylvania, New Jersey, Delaware, and the Virgin Islands), Murphy v. Millennium Radio Group, LLC, [https://www.ca3.uscourts.gov/opinarch/102163p.pdf] demonstrates how dangerous it is to post on your website an image that does not contain this “copyright management information.”

In Murphy, a professional photographer took a picture of two radio show shock jocks, partially nude, for a print publication. The photographer maintained copyright. A radio station employee scans the image, posts it on the radio station website, and invites people to “photoshop” the image in a contest. No attribution identifying the photographer is given.

The photographer sues and loses in the trial court – essentially because that court believed the use was a fair use or licensed. The appellate court, however, reverses. It holds that under the Digital Millennium Copyright Act, the “copyright management information” includes identification of the author of the image. Of important note – the DMCA for the purposes of this provisions, has no “fair use” defense – in other words, the copyright management information must always be included.

The take away here is that if you are electronically displaying images in which you are not the author, the EXIF file data – the data that is embedded in the image and can be read by software to see the copyright management information – cannot be stripped off the file. In addition, if you are using stock photography, or manage a stock photo site, the EXIF data must be retained in the image.

For more information, please contact Mike Oliver.

FTC issues privacy guide for facial recognition technology

The FTC released a study and guide on facial recognition technology, and provided guidance on notice, transparency and options required when making use of, storing and sharing facial recognition information.  The case studies included a basic use (for example, a face is scanned and then the user may make changes to see what hair, clothes, jewelry or other things look like), a more advanced use – an interactive kiosk that takes a picture of a consumer, assesses their age and gender, and presents an advertisement specifically for that consumer, and finally an example of use of facial recognition in social media and sharing those images (a la Facebook).

Anyone making use of facial recognition technology should consult these guides as they would any other FTC advertising or privacy guide, before they commence collecting, using or sharing facial recognition images.

For more information on privacy law compliance, contact Mike Oliver or Kimberly Grimsley.

Copyright Infringement Claims to BitTorrent File Sharing on the Rise

BitTorrent is a peer to peer file sharing protocol that allows its members to share pieces of a file simultaneously such that each user can access and view the entire file without downloading it completely. It was designed to facilitate the sharing of large files and minimize the demand on an individual server. A seed user uploads the file and then peer users join the network, each simultaneously sending and receiving pieces of the file within the swarm of users.

BitTorrent file sharing has the capacity to be used for software and content updates as well as the authorized distribution of media content and comprises a significant amount of total web traffic and bandwidth consumption. Several BitTorrent sites index and catalog publicly-available media files, including movies, television shows, music, video games, and applications, while some files are shared only within a closed group.

When copyright protected material is shared using a BitTorrent protocol without the holder’s permission, each transmission among the users constitutes a copyright infringement. Media distributors, including movie studios, have begun targeting BitTorrent peers through their IP addresses and filing mass lawsuits against up to several thousand downloaders at time. Statutory penalties can be as high as $150,000 but are often much lower.

For the purposes of naming defendants in these sweeping lawsuits, internet service subscribers are identified by their IP addresses. For business owners, that means that any infringing downloads that occur over your connection by your employees, customers, and neighbors can be traced back to your business, in much the same way that a red-light ticket comes to the registered owner of a car regardless of who was driving it. While you may not be able to monitor all internet activity over your home or business network, especially if you have a large number of employees, network security and clear policies and training on internet use limitations can help to prevent unwanted copyright infringement in your business’ name. BitTorrent files and client software often carry viruses and malware as well and should be avoided unless needed for a designated purpose.

For more information on BitTorrent copyright enforcement contact Mike Oliver.

Mergers and acquisitions 101 – how specific language can save you if you need to back out of a merger

Most merger and acquisition (“m&a”) transactions follow a fairly well defined course, commencing with a non disclosure agreement and sharing of a small amount of data to verify some key financial information, then moving to a letter of intent (“LOI”), which also can be called a Memorandum of Understanding (or “MOU”).

The LOI/MOU is often specifically non binding, except for confidentiality, a lockup clause, and perhaps certain other specific clauses (like typically that each party bears its own attorneys fees).  If the due diligence performed in the LOI/MOU stage pans out, the parties will then proceed to definitive agreements, which are typically signed at a closing.  In today’s world, that closing is most often “electronic” – that is to say, the parties exchange electronically signed documents, one of the attorneys assemble the documents, and hold them in an “attorney escrow” and then upon instructions, the escrow is “released” and the documents become “hard.”  This is sometimes referred to as a soft closing – in that it can take some time to assemble the various signatures, and other documents that are pre-conditions to the effectiveness of the m&a deal.

An attorney nightmare in these cases occurs when, at the last minute, one of the parties calls off the deal.  Often the parties have acted as if the deal will proceed, and have relied on the closing in taking or refraining to take certain actions.  If a party fails to release the documents from escrow, and the other party has suffered damages, a lawsuit can ensue.  These are somewhat rare cases, but in a recent case, Olympus Managed Health Care, Inc. v. Am. Housecall Physicians, Inc., 853 F. Supp. 2d 559 (W.D.N.C., 2/12/2012), exactly this issue was presented to the court.

M&A deals can be complex, and often involve other issues – such as pre-purchase loans, bridge agreements, options, teaming and distribution agreements, and so on.  In the Olympus Managed case above, the merging parties had prior contractual agreements – one party was an exclusive dealer of services of the other party (in the U.S.), and one party had loaned the other party money.  The parties had exchanged signature pages in a soft escrow, but the attorneys had not released them when something happened.  The purchaser/acquiror had not informed the target that one of its stockholders was disputing rights to its stock, and there was an arbitration proceeding, and right before the merger was to close, the arbitrator had hinted that he might require all of the stock of the acquiror to be put in escrow.  Had that occurred, the acquiror could not proceed with a merger (a merger often involves exchange of stock and issuance of new stock to the target).  The acquiror called off the closing, one day before the escrow release.  Therein ensued this lawsuit, which included every claim imaginable – fraud, breach of contract, breach of fiduciary duty, intentional interference with contract, and so on.

During the course of the negotiations, the lawyer for the acquiror had been careful to include certain language in his emails, letters and in the LOI/MOU.  That magic language, was to this effect:  the LOI expressly provided that it “does not constitute a binding agreement” and was “[s]ubject to the negotiation of definitive agreements meeting with approval of the parties” and the agreement then repeated a similar qualification three times as it laid out its operative paragraphs: “assuming the due authorization, execution and delivery hereof by [the parties], are, or will be, the valid and binding obligation of each [of them].”  Also, most of the communications indicated similarly that any draft submitted was “subject to final execution.”

Under Delaware law, this process has been described as follows:

“Especially when large deals are concluded among corporations and individuals of substance, the usual sequence of events is not that of offer and acceptance; on the contrary, the businessmen who originally conduct the negotiations, often will consciously refrain from ever making a binding offer, realizing as they do that a large deal tends to be complex and that its terms have to be formulated by lawyers before it can be permitted to become a legally enforceable transaction. Thus the original negotiators will merely attempt to ascertain whether they see eye to eye concerning those aspects of the deal which seem to be most important from a business point of view. Once they do, or think they do, the negotiation is then turned over to the lawyers, usually with instructions to produce a document which all participants will be willing to sign. . . .

After a number of drafts have been exchanged and discussed, the lawyers may finally come up with a draft which meets the approval of all of them, and of their clients. It is only then that the parties will proceed to the actual formation of the contract, and often this will be done by way of a formal `closing’ … or in any event by simultaneous execution or delivery in the course of a more or less ceremonial meeting, of the document or documents prepared by the lawyers.”

Leeds v. First Allied Conn. Corp., 521 A.2d 1095, 1102 n.4 (Del. Ch. 1986).

The Olympus Managed case demonstrates that even when a transaction is carefully planned and follows traditional M&A practice, a lawsuit can arise when a closing is aborted, and this risk increases the closer one gets to the closing.  In Olympus Managed, the documents had all been signed and were held in an attorney escrow and would have went hard one day after the notice was given to call the deal off.  In these cases, the risk of litigation is exceptionally high.  In Olympus Managed, however, the jilted suitor turned plaintiff  was unable to prove that the M&A deal was “hard” and hence lost on that and most other claims it made.

While it may not be appropriate in every deal (and may be hard to obtain), potential targets are therefore sometimes well advised to seek representations and warranties from the acquiring company in the LOI/MOU, to the effect that the acquiring company has no pending or threatened lawsuit or other action that would impede or impair or otherwise prevent them from completing the deal as proposed.  In the Olympus Managed case it is pretty clear that the acquiror knew it had this stockholder case pending, did not inform the target, and then used that as a basis to call the deal off.   Even if the target had searched the case records for this case, it would not have found it, because it was a private arbitration.  If a representation had been made that nothing impaired its ability to complete the transaction, the acquiror would have been in a much worse position trying to avoid the closing (as the resolution of the stockholder case was not a condition precedent to the deal) .  Also, if the agreement was not a “sign and close” deal and instead was a “sign then close” deal, a proper representation of the acquiror in the definitive agreement would have been breached as well.

For more information on these issues, contact Mike Oliver.

Perils of overpricing and responding to government RFPs

The article in Networkworld “Cisco network really was $100 million more” is a good example of the danger in responding to governmental requests for proposal (RFP) without considering the publicity downside of significant overpricing.

The article explains that in bidding on a large computer infrastructure project for California State University, Cisco’s bid was over 100 million dollars higher than the closest competitor for the same equivalent products and services.  Cisco’s bid, in fact was more than 5 times the accepted bid price.   While some premium might be attributable to Cisco’s products – superior quality, service or warranty, that difference is not likely to be worth more than 5 times any other manufacturer’s similar bid.

Government RFP responses in most cases become public.  Also, because an RFP is an “apple to apple” response, at least on a unit/performance basis, the only justification for real bid differences normally comes in quality of service (perceived or real), or in product quality distinctions.

With the amount of due diligence that everyone is doing on companies – investors, potential targets, potential joint venture partners, licensees, customers – any business that is responding to an RFP should consider that the response, whether accepted or not, will become publicly available.  The article suggests that Cisco might overprice on RFP responses when it senses it has no ability to win the bid.  Why?  It makes more sense to withdraw from the competitive bidding, than to overprice.

A similar risk presents itself for underpricing.  Many companies ask for “most favored nations” (“MFN”) clauses – clauses that require post contractual price adjustments based on later favorable pricing offered to other customers.  MFN clauses are dangerous for a host of reasons (one significant one is that if written incorrectly, they make literally every customer contract potentially relevant evidence in a dispute), but if a bidder underprices on an RFP response, in the hopes of later recouping the lower cost through add ons or change orders, that initial pricing is now public and can be used against the bidder if they had issued MFNs to other customers.

In short, many considerations must be reviewed in responding to any governmental RFP – not just pricing, units, metrics and services.

For more information, contact Mike Oliver.

Protecting Your Work Online

Dilemma: You find out that a company has copied an article that you created from your website, and it is using it on its website as if it had written the article itself. You want to stop them from using your article but you do not have a copyright registration for anything on your website. What can you do to stop them?

Copyright registrations offer numerous benefits, including the benefits of bringing an action for copyright infringement to enjoin the infringing company from using your work and obtaining statutory damages. A copyright registration is required to file a lawsuit for copyright infringement. However, even at this stage where a company is using your work and you do not have a registration, you could file an application for copyright registration on an expedited basis and then file an action for infringement. Regarding damages, those are limited in this situation to actual damages, whereas if you had previously obtained a copyright registration, typically you could obtain statutory damages and be eligible attorneys’ fees, which could be significantly higher than actual damages.

In addition, even without a registration, you are still protected under United States copyright laws, and there are options available to you to stop others from using your material without your permission without filing a lawsuit.

One option is to send the infringer a demand letter stating that you are the owner the work, that they are using your material without your authorization, and that they must take it down immediately. Such a letter could cause the infringer to immediately take down the work. Another course of action is to send a notice and takedown letter to the web hosting company (i.e. GoDaddy) indicating that the site is infringing upon your copyright and requesting that the web hosting company take the work down. Additionally, many web hosting companies have their own policies in place, which can typically be found on their website and which will assist a party when their work has been infringed upon.

Also keep in mind that if the possibility of a working relationship could exist between the of the infringer and you or if the exposure may actually be helpful to you by giving you credit for your work, you could try a telephone call first to see if an arrangement can be made where the company can be given a license to use your work. If that does not work, you can proceed with the other options.

For more information, please contact Kim Grimsley.